Fortnightly - Customer engagementhttp://www.fortnightly.com/tags/customer-engagement
enAccentuate the Positivehttp://www.fortnightly.com/fortnightly/2013/08/accentuate-positive
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>A practical guide to explaining the value of the smart grid.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Patty Durand</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Patty Durand</b> is executive director of the Smart Grid Consumer Collaborative. Previously she helped to prepare and submit $10 million in smart grid grant proposals to the Department of Energy and ARPA-E, and she conducted smart grid research projects at Georgia Institute of Technology.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - August 2013</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>It’s a common theme – skeptical stakeholders and reporters will say, “OK, a smart grid is good for the utility, and what’s good for the utility is supposed to be good for the consumer. But exactly what’s in it for the consumer?” </p>
<p>Explaining the value proposition of a smarter electricity system to consumers, stakeholders, and regulators remains the last mile in terms of driving acceptance and adoption of smarter technology. Why? Because it’s not easy to do for most organizations, and because our nation’s energy literacy isn’t where it should be. And without widespread time-of-use or other smart grid programs deployed in every service territory in the United States, it’s difficult to understand how new pricing programs and technology investments are tied to direct consumer benefits. </p>
<p>A customer might rightly ask, “Why should I accept expensive smart grid technology investments for benefits that I don’t see and that only help the utility?” That is, if they have even heard the term “smart grid.”</p>
<p>Even in the wake of storms such as Sandy, where outage restoration dominated headlines, consumers have yet to understand the whole value of an advanced electricity infrastructure. Understandably, regulators take a conservative approach to approving new smart grid programs and technology investments since they have two priority goals: maintaining the lowest cost and the highest reliability for customers. </p>
<p>While consumers value reliability and low cost, research shows there are other benefits of a smarter electricity system that consumers do value and would be willing to pay for, including enhanced efficiency and a cleaner environment.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#1" title="1. “Consumer Pulse Wave 3 Study,” Smart Grid Consumer Collaborative, 2013.">1</a></sup></b></p>
<p>But we know consumers don’t understand electric utilities’ primary mandates because they don’t understand electricity. How does an organization engage and educate consumers and stakeholders about the benefits of a smarter system? How can a regulatory system be designed to enable success with smart grid programs?</p>
<p>Many U.S. utilities have successfully taken on this challenge. And they’ve said many of the same things: show consumers how to save money and how to manage their budget; do it early and often; show them the short-term benefits; and be sure to communicate about the long-term benefits as they occur. Anticipate and address questions from a skeptical public. Also, help consumers realize they’re in control, and show them how a smarter grid is addressing their environmental concerns. After all, consumers have several motivations for caring about a smarter grid. </p>
<p>The fact is, once consumers understand the benefits associated with a smarter system, they overwhelmingly support it.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#2" title="2. “Consumer Pulse and Market Segmentation Study,” Smart Grid Consumer Collaborative, 2012.">2</a></sup></b></p>
<h4>Getting Real with Customers</h4>
<p>Research has shown consumer awareness and understanding of smart grid is low; fewer than 50 percent of Americans have heard of the smart grid, and only 25 percent of those who have heard the term know what it means.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#3" title="3. “2013 State of the Consumer Report,” Smart Grid Consumer Collaborative.">3</a></sup></b> That lack of knowledge can lead to apathy and often misunderstanding about new technology.</p>
<p>Educating consumers about energy fundamentals can help to set the stage for the more advanced conversation down the road. Utilities and other organizations have found that focusing the conversation around consumer benefits and effects is a good starting point on the journey to energy literacy, because it assigns a benefit to the concept, making it easier to understand. </p>
<p>One exemplary effort to help educate consumers about energy literacy is Power Over Energy, an energy literacy initiative focused on educating, empowering, and motivating consumers to make smarter decisions about the way we all use electricity. </p>
<p>Launched by a diverse coalition of supporters (including SGCC), the pilot phase was launched in early 2013 to test consumer interest in learning more about energy. Power Over Energy combines energy curricula focused in the areas of generation, consumption, transmission, impact, and conservation, with online ads, social media and interactive tools to help consumers understand more about how energy is produced and how consumers’ choices affect the environment. Since February 2013, the results indicate strong consumer interest in learning more about energy with more than 50,000 Facebook Likes and a global reach of nearly 29 million consumers. </p>
<p>The thirst and demand for information is out there. The key is to package it in a way that consumers understand and enjoy.</p>
<p>The next step, making a smart grid program easy and empowering for consumers, is critical to adoption and acceptance. The less consumers have to do, and the more control they have over energy use decisions, the better. </p>
<p>Toward that end, the Department of Energy’s Pacific Northwest National Laboratory (PNNL) initiated one of the first utility customer engagement efforts in the country. In 2006 and ’07, the GridWise Olympic Peninsula Demonstration Project<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#4" title="4. Hammerstrom, D.J., et al., “Pacific Northwest GridWise Testbed Demonstration Projects,” PNNL, Oct. 2007. ">4</a></sup></b> in Washington state tested a couple of theories: first, it’s possible to make it easy for consumers to reduce peak load and save money; and second, smart technology can help a utility manage peak loads. By outfitting appliances with a smart technology chip that intermittently stopped and started heating coils during times of peak demand, and providing customers with an easy-to-use, preferential scale for price vs. comfort on their utility’s website, the project saved an average of about 10 percent on consumers’ electric bills. Further, the utility shaved 15 percent off its peak load by using smart grid technology. And in a post-project survey, the PNNL team found that of the approximately 150 consumers involved in the project, only one customer actually noticed an interruption. </p>
<p>In addition to making a smart grid easy to use, utilities that empower consumers with information about their energy use are more likely to achieve smart grid adoption. As 2012 came to a close, Southern California Edison (SCE) was completing final smart meter installations for nearly 5 million residential and small business accounts in its 50,000-square-mile service territory. The installations were part of the SCE SmartConnect program, a secure, two-way wireless advanced metering system that replaced traditional electric meters with new digital smart meters from 2009 through 2012. Through SCE’s “My Account” web portal, <a href="http://bit.ly/17M6Uf7 ">http://bit.ly/17M6Uf7 </a> customers now have access to data about their electricity usage in hourly (residential) and 15-minute increments (small business), which is helping them make better-informed decisions about how they manage their usage. More than 350,000 residential customers signed up for the service in the first year.</p>
<p>From the onset, one of SCE’s key tenets was to ensure a positive customer experience during program implementation through its customer engagement model – and the utility achieved more than 80 percent customer satisfaction early on in the smart meter installation process. </p>
<h4>Strategic Communications</h4>
<p>Communicating early and often can make a big difference in consumer acceptance of smart grid programs. Having a strategic communication plan is a best practice for almost any industry, but it’s particularly important for those industries dealing with change and new information.</p>
<p>Oklahoma Gas &amp; Electric (OG&amp;E), for example, embarked on installing its advanced metering infrastructure in 2008, rolled out smart meters in phases, and created a program called “SmartHours,” beginning in Norman, Okla., in 2010. The company has now completed its smart meter deployment, installing more than 823,000 smart meters throughout its service area. </p>
<p>Each step of the way, OG&amp;E tested and fine-tuned how it engaged customers to help them take full advantage of what its “Positive Smart Energy Grid” can offer. Today, an integral part of the utility’s strategy is having tools available on the “myOGEpower” web portal. <a href="http://www.oge.com/RESIDENTIAL-CUSTOMERS/PRODUCTS-AND-SERVICES/POSITIVE-ENERGY-SMART-GRID/Pages/myOGEpower.aspx">http://www.oge.com/RESIDENTIAL-CUSTOMERS/PRODUCTS-AND-SERVICES/POSITIVE-...</a> There, customers can analyze their energy bills, see the energy they are using and its costs, understand dynamic pricing, and learn which rate plans are best for them. </p>
<p>OG&amp;E focused efforts on helping consumers understand the tools available to them. First, the utility communicated with customers before, during, and after smart meter installation, using multiple channels such as e-mail ads, direct mailings (which included a self-addressed and stamped response card), and video tutorials. Next, OG&amp;E placed easy-to-understand information on its web portal, including anticipated Q&amp;As. The company also addressed skeptics by providing a “best bill” guarantee, which ensures customers won’t pay more for the first 12 months they’re on the SmartHours rate than they would have paid on the standard flat rate. To address questions about the meter accuracy after the installation of smart meters, OG&amp;E left old meters in place for one month and took pictures of readings as evidence that the new meters were accurate. By the end of the 2012 summer cooling season, OG&amp;E had enrolled more than 44,000 customers in the SmartHours program. Impressively, those customers helped OG&amp;E meet its target of 70 MW of load reduction. By 2014, the company aims to reduce its load by 210 MW in total, and reduce its peak demand. </p>
<h4>Policy Vision</h4>
<p>Regulators of the more than 3,500 electricity providers<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#5" title="5. “2012-2013 Annual Directory &amp; Statistical Report,” American Public Power Association.">5</a></sup></b> in the U.S. have much on their plates; after all, providing resilient, reliable, and affordable power requires nonstop attention to the details of everyday operations. Adding policy goals like renewable portfolio standards further complicates the mission (<i>see “Pricing Social Benefits” <a href="http://www.fortnightly.com/fortnightly/2013/08/pricing-social-benefits">http://www.fortnightly.com/fortnightly/2013/08/pricing-social-benefits</a></i>). In this context, technology innovation or change – even to benefit consumers – will be extremely slow. </p>
<p>Perhaps a new policy or set of policies is a solution; maybe regulators should consider establishing separate commission policies on utility innovation and new technology.</p>
<p>Such policies would allow utilities and regulators to meet reliability and lowest-cost mandates, while also allowing them to advance solutions incorporating advanced, cleaner and greener technologies. A separate policy also would allow utilities and regulators to continue building upon a growing business case for these innovations. </p>
<p>And that business case is compelling: a recent Navigant Research report says the market for smart grid technologies will total $494 billion in cumulative revenue from 2012 to 2020.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#6" title="6. “Smart Grid Technologies” report, Navigant Research, 2013.">6</a></sup></b> Recently, Detroit utility DTE achieved 135 percent of its business case on its Itron meters. As a result, DTE is considering accelerating the deployment of the remaining 2.2 million meters and gas modules over the next five years.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#7" title="7. “Q1 2013 Earnings Call,” Itron.">7</a></sup></b></p>
<p>Whatever the policy structure, market acceptance requires forward direction set by regulators. So far, that direction isn’t always clearly set. </p>
<p>To set that direction, utilities first need to provide regulators with a clear vision of what could be accomplished in their service territories by upgrading to advanced technology. That vision already is being established through the many examples of utilities in the U.S. – such as DTE, OG&amp;E, SCE, and others – that have designed creative, innovative programs for their ratepayers. </p>
<p>A second step would be for utilities to outline a detailed understanding of the benefits of smart grid to their ratepayers. That also means understanding that initial costs for technology investments will pay off for consumers over time, and that using the lowest cost as a metric isn’t necessarily the best thing if it means innovation is stifled and consumers save less money over time. </p>
<p>Finally, where the business case shows positive future value, utilities must be willing to implement new programs – and communicate the benefits of those programs back to consumers through the process. Also, by understanding the segmentation of their ratepayers,<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#8" title="8. “Consumer Pulse and Market Segmentation Study,” Smart Grid Consumer Collaborative, 2012.">8</a></sup></b> utilities and regulatory bodies can design programs to best survey and then communicate with consumers.</p>
<h4>Raising the Stakes</h4>
<p>What happens to the next generation of consumers and electricity infrastructure workforce if forward progress isn’t happening, particularly within utilities? According to the Congressional Research Service, the utility industry (<i>e.g.,</i> electricity, natural gas, and water providers) has the highest proportion of Baby Boomers in the workforce, with almost three of every five workers between 41 and 59 years old in 2005.<b><sup><a href="http://www.fortnightly.com/fortnightly/2013/08/accentuate-positive?page=0%2C4#9" title="9. Levine, Linda L., “Retiring Baby Boomers = A Labor Shortage?” Congressional Research Service Report for Congress, 2008, p. 10.">9</a></sup></b> That’s a major wake up call to inspire talent – and do it now. In addition, environmental concerns, more extreme weather patterns, and growing concerns for human health and wellness all should be drivers for infrastructure upgrades. Importantly, a smart grid can ensure more resilient and reliable service, and can directly reduce emissions by integrating renewables and automating efficiency. </p>
<p>Regulators should keep the benefits of an advanced electricity infrastructure at top of mind when making decisions to improve our nation’s power system. How does this investment now benefit consumers 10, 15, and 20 years into the future? To answer such questions, regulators should address technical subjects directly and seek to simplify the analysis in discussions with consumers. After all, our economy and way of life depends on a modern and sustainable electricity system, and that system must integrate the full range of energy resources – from nuclear to distributed renewables. Optimizing that integration depends on a fully functional smart grid. </p>
<p>Moreover, as the nation moves into a time of unprecedented environmental, economic, and technological change, our power system must keep up in order to continue meeting our growing demand for the high-tech products and services that depend on reliable and affordable power supplies. </p>
<p>Such issues represent the primary motivating factors in any discussion about smart grid upgrades, time-of-use programs, and other initiatives that involve investing in new technology and systems. Changing the way our nation thinks about the need for smart grid technology takes a village, but it also means moving markets to invest in the technology in the first place. That starts with a solid business case and clear policy direction, and it continues with ongoing communications to show the value of smart grid to customers.</p>
<h4>Endnotes:</h4>
<p><a name="1" id="1"></a>1. “<a href="http://smartgridcc.org/research/sgcc-research/sgccs-consumer-pulse-wave-3-study-summary" target="_blank">Consumer Pulse Wave 3 Study</a>,” Smart Grid Consumer Collaborative, 2013.</p>
<p><a name="2" id="2"></a>2. “<a href="http://smartgridcc.org/sgccs-consumer-pulse-and-market-segmentation-study-summary" target="_blank">Consumer Pulse and Market Segmentation Study</a>,” Smart Grid Consumer Collaborative, 2012.</p>
<p><a name="3" id="3"></a>3. “<a href="http://smartgridcc.org/sgccs-2013-state-of-the-consumer-report" target="_blank">2013 State of the Consumer Report</a>,” Smart Grid Consumer Collaborative.</p>
<p><a name="4" id="4"></a>4. Hammerstrom, D.J., <i>et al.,</i> “<a href="http://www.pnl.gov/main/publications/external/technical_reports/PNNL-17167.pdf" target="_blank">Pacific Northwest GridWise Testbed Demonstration Projects</a>,” PNNL, Oct. 2007. </p>
<p><a name="5" id="5"></a>5. “<a href="http://www.publicpower.org/files/PDFs/USElectricUtilityIndustryStatistics.pdf" target="_blank">2012-2013 Annual Directory &amp; Statistical Report</a>,” American Public Power Association.</p>
<p><a name="6" id="6"></a>6. “<a href="http://www.navigantresearch.com/research/smart-grid-technologies" target="_blank">Smart Grid Technologies</a>” report, Navigant Research, 2013.</p>
<p><a name="7" id="7"></a>7. “<a href="http://seekingalpha.com/article/1376291-itron-management-discusses-q1-2013-results-earnings-call-transcript?part=single" target="_blank">Q1 2013 Earnings Call</a>,” Itron.</p>
<p><a name="8" id="8"></a>8. “<a href="http://smartgridcc.org/sgccs-consumer-pulse-and-market-segmentation-study-summary" target="_blank">Consumer Pulse and Market Segmentation Study</a>,” Smart Grid Consumer Collaborative, 2012.</p>
<p><a name="9" id="9"></a>9. Levine, Linda L., “<a href="http://www.aging.senate.gov/crs/pension36.pdf" target="_blank">Retiring Baby Boomers = A Labor Shortage?</a>” Congressional Research Service Report for Congress, 2008, p. 10.</p>
</div></div></div><div class="field-collection-container clearfix"><div class="field field-name-field-sidebar field-type-field-collection field-label-above"><div class="field-label">Sidebar:&nbsp;</div><div class="field-items"><div class="field-item even"><div class="field-collection-view clearfix view-mode-full field-collection-view-final"><div class="entity entity-field-collection-item field-collection-item-field-sidebar clearfix">
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<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">Smart Grid Talking Points</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter-->The goal of communicating the value of smart grid technology to customers requires industry professionals to first understand that value, and second to relate it to customers and stakeholders in all forums. The facts about grid modernization can be complex and somewhat intangible, but some clear and simple talking points can help.
• Modernizing today’s grid could mean nearly $600 in direct bill savings for the average household each year. (Source: Perfect Power Institute)
• The smart grid could increase the efficiency of today’s system by approximately 9 percent by 2030 (Source: Pacific Northwest National Laboratory)
• If the electricity grid were just 5 percent more efficient, it would reduce U.S. greenhouse gas emissions equivalent to removing 53 million cars. (Source: U.S. Department of Energy)
• 40 percent of the electricity used to power home electronics is consumed while they’re turned off. In the U.S., the total electricity consumed by idle electronics equals the annual output of 12 power plants. (Source: U.S. Environmental Protection Agency)
More facts and figures associated with the benefits of a smarter grid are provided at <a href="http://www.poweroverenergy.org">www.poweroverenergy.org</a> and Smart Grid Consumer Collaborative’ s infographic (<a href="http://wp.me/P1WXcd-2gA">http://wp.me/P1WXcd-2gA</a>) “Smart Grid: Where Energy is Going.”–PD</div></div></div> </div>
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</div></div></div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/customer-engagement">Customer Engagement</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/pricing-0">Pricing</a></li><li class="taxonomy-term-reference-2"><a href="/article-categories/smart-grid">Smart Grid</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1308-FEA1.jpg" width="1500" height="779" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/customer-education">customer education</a><span class="pur_comma">, </span><a href="/tags/stakeholders">stakeholders</a><span class="pur_comma">, </span><a href="/tags/time-use">Time-of-use</a><span class="pur_comma">, </span><a href="/tags/sandy">Sandy</a><span class="pur_comma">, </span><a href="/tags/outage-restoration">Outage restoration</a><span class="pur_comma">, </span><a href="/tags/reliability">Reliability</a><span class="pur_comma">, </span><a href="/tags/efficiency">efficiency</a><span class="pur_comma">, </span><a href="/tags/environment">environment</a><span class="pur_comma">, </span><a href="/tags/smart-grid-consumer-collaborative">Smart Grid Consumer Collaborative</a><span class="pur_comma">, </span><a href="/tags/power-over-energy">Power Over Energy</a><span class="pur_comma">, </span><a href="/tags/energy-literacy">energy literacy</a><span class="pur_comma">, </span><a href="/tags/sgcc">SGCC</a><span class="pur_comma">, </span><a href="/tags/generation">generation</a><span class="pur_comma">, </span><a href="/tags/consumption">consumption</a><span class="pur_comma">, </span><a href="/tags/transmission">Transmission</a><span class="pur_comma">, </span><a href="/tags/conservation">Conservation</a><span class="pur_comma">, </span><a href="/tags/pacific-northwest-national-laboratory">Pacific Northwest National Laboratory</a><span class="pur_comma">, </span><a href="/tags/pnnl">PNNL</a><span class="pur_comma">, </span><a href="/tags/gridwise">GridWise</a><span class="pur_comma">, </span><a href="/tags/washington">Washington</a><span class="pur_comma">, </span><a href="/tags/peak-load">peak load</a><span class="pur_comma">, </span><a href="/tags/southern-california-edison">Southern California Edison</a><span class="pur_comma">, </span><a href="/tags/sce">SCE</a><span class="pur_comma">, </span><a href="/tags/smartconnect">SmartConnect</a><span class="pur_comma">, </span><a href="/tags/wireless">wireless</a><span class="pur_comma">, </span><a href="/tags/advanced-metering">advanced metering</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/strategic-communications">strategic communications</a><span class="pur_comma">, </span><a href="/tags/oklahoma-gas-electric-0">Oklahoma Gas&amp; Electric</a><span class="pur_comma">, </span><a href="/tags/oge">OG&amp;E</a><span class="pur_comma">, </span><a href="/tags/smarthours">SmartHours</a><span class="pur_comma">, </span><a href="/tags/perfect-power-institute">Perfect Power Institute</a><span class="pur_comma">, </span><a href="/tags/department-energy">Department of Energy</a><span class="pur_comma">, </span><a href="/tags/environmental-protection-agency">Environmental Protection Agency</a><span class="pur_comma">, </span><a href="/tags/poweroverenergyorg">poweroverenergy.org</a><span class="pur_comma">, </span><a href="/tags/renewable-portfolio-standards">Renewable portfolio standards</a><span class="pur_comma">, </span><a href="/tags/navigant">Navigant</a><span class="pur_comma">, </span><a href="/tags/detroit">Detroit</a><span class="pur_comma">, </span><a href="/tags/dte">DTE</a><span class="pur_comma">, </span><a href="/tags/congressional-research-service">Congressional Research Service</a><span class="pur_comma">, </span><a href="/tags/weather">weather</a><span class="pur_comma">, </span><a href="/tags/infrastructure">Infrastructure</a><span class="pur_comma">, </span><a href="/tags/smart-grid-business-case">smart grid business case</a><span class="pur_comma">, </span><a href="/tags/smart-grid-value">smart grid value</a> </div>
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Wed, 31 Jul 2013 20:09:41 +0000meacott16687 at http://www.fortnightly.comValue Co-Creationhttp://www.fortnightly.com/fortnightly/value-co-creation
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>Utilities have long lived in a closed, asset-centric world. Success historically has involved mastering the key value chain steps of generation, transmission, and distribution, developing good relationships with regulators to negotiate favorable rate structures, and providing a good-enough level of service to the customer (<em>see Figure 1</em>).</p>
<p>Success in the “new world” of utilities lies in the ability to engage communities of stakeholders in new ways, partnering with them to build an open ecosystem where assets in the ground are less important than the interactions that bind them together and the new experiences that they allow for all parties involved. This requires putting in place a new process of engagement and a new infrastructure allowing all stakeholders (utility management, utility employees, B2B and B2C customers, suppliers, regulators) to interact with each other in new and different ways. The future of utilities lies in becoming co-creative enterprises (<em>see Figure 2</em>).</p>
<p><span style="font-size:14px;"><span style="color: rgb(178, 34, 34);"><strong>Three Paths to Co-Creation</strong></span></span></p>
<p>While there are a multitude of ways that enterprise co-creation can evolve, here are three tangible ways for utilities to start the co-creative journey.</p>
<p>1) <em>New Communities of Interest: </em>Utilities historically have subscribed to the notion that their primary function is the safe and reliable delivery of energy to customers – which certainly is paramount – but that their interaction ends at the meter. Yet from the customer’s perspective, that’s where their utility experience begins. More and more, companies are finding that it’s in customers’ interactions with their product or service where experiences occur and new value is created.</p>
<p>Consider the case of a top running shoe manufacturer. This company had been providing a quality product for years, but about a decade ago came to the realization that the shoe itself was only one small part of the running experience.</p>
<p>To get more involved in the overall experience, the company developed and deployed an on-line engagement platform where communities of runners can share running data, event information, route maps, and even thoughts on related interests like music. The platform also allows runners to connect their running experience to other runners, coaches, professionals, friends, and family members. In other words, the company created a community, in which a set of stakeholders could co-create value though shared experiences. In the end, all stakeholders benefitted from the new value created.</p>
<p>What’s preventing a utility from creating a similar platform that allows end users to co-create value by sharing information on their own beyond-the-meter experiences around energy usage, energy efficiency, smart meters, renewables, EVs, new energy products and services, and related community news and events?</p>
<p>2) <em>Multi-Stakeholder Engagement:</em> Good ideas can come from a variety of sources, but sometimes the challenge lies in mobilizing the varied stakeholders toward a common, shared vision. All too often, new energy projects are slow to start because nobody takes ownership for engaging all the parties. A classic example can be found in some of the smart meter deployments around the country, several of which haven’t gone smoothly. In these cases, the vision and value of the smart grid was usually engineered by the utility or the equipment providers and thrust upon unwitting customers.</p>
<p>An alternate approach is to engage through enterprise co-creation. In the Southwest, what began as a “small, community-based collaboration to reinvent the energy system” ended up teaming with the local electric utility and nearly a dozen private companies to create one of the country’s furthest reaching and comprehensive energy projects. Through co-creative approaches the group built is vision and strategy, and applied for and won a $10-million DOE grant for a smart grid demonstration project – and doubled the funding through local matching grants. The pilot project was oversubscribed with enrollees who bought in early, having been engaged as stakeholders in the co-creative process. The project recently went live, with the project executive director saying “those working on and advocating for the smart grid need to learn a lot more from customers than they need to learn from us.”</p>
<p>3) <em>Mobilized Employees:</em> Enterprise co-Creation isn’t limited to engagement of external stakeholders. Internal stakeholders – namely, utility employees – are as important a co-creation stakeholder group as any other. For many utilities, the knowledge and skill of employees – who are generally fully engaged in keeping the utility operating – goes untapped when it comes to new ideas and new ways of doing things. Enterprise co-creation can help create a mechanism to engage employees and identify novel, value-adding solutions to challenging problems.</p>
<p>Consider the case of the national postal system of France, La Poste. Like many postal systems around the world, La Poste was struggling with a rapidly declining mail business. This led to a rash of post office open-hour cutbacks and closures, and with it, steady decreases in customer satisfaction.</p>
<p>In an unusual move, La Poste turned to its employees to work collaboratively with management and the union structure to co-create solutions that would improve customer satisfaction. The employees focused on the process of post office scheduling, and came up with a solution whereby the post office employees actively schedule their own work, rather than have management create the schedule and hand it down to passive employees.</p>
<p>The results were stellar. Self-scheduling allowed employees to adjust opening hours to better fit with local customer needs. Average queuing times were cut in half, and for the first time in years, customer service levels increased. An additional benefit: postal employee absenteeism decreased dramatically. The results were so positive that La Poste is now looking to enterprise co-creation principles to create new products and services, and develop a new post office performance model.</p>
<p>How might a utility company benefit by providing employees with an enterprise co-creation platform?</p>
<p><span style="color:#b22222;"><span style="font-size: 14px;"><strong>Getting Started</strong></span></span></p>
<p>While enterprise co-creation is a new concept for most utilities, there’s nothing inherent in the utility business model that suggests the successes that companies in other industries have enjoyed can’t translate here. And getting started doesn’t have to be complicated. One approach could be to pick a small internal process (<em>e.g.,</em> service activation or repair and maintenance contact center) and open it up to a community of stakeholders. The same approach then moves from there, and the effcts can be infectious. Soon, old notions of the value a utility can deliver with come tumbling down, and the utility can start evolving toward a new model of value creation.</p>
<p><span style="color:#b22222;"><strong>ABOUT THE AUTHORS: </strong></span><em>Francis Gouillart is president of the Experience Co-Creation Partnership. A</em><em>ndy McKenna is a director and Ryan Cahill Sr. is an associate with PwC. </em></p>
</div></div></div><div class="field field-name-field-import-deck field-type-text-long field-label-above"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even">Partnering with customers in a new energy enterprise.</div></div></div><div class="field field-name-field-byline field-type-text field-label-above"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even">By Francis Gouillart, Enterprise Co-Creation Partnership; and Andy McKenna and Ryan Cahill Sr., PwC</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/SPARK-130530.jpg" width="648" height="421" alt="" /></div><div class="field-item odd"><img src="http://www.fortnightly.com/sites/default/files/Spark130530-fig1-F.jpg" width="1644" height="602" alt="Figure 1 - Traditional Utility Value Chain" title="Figure 1 - Traditional Utility Value Chain" /></div><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/Spark130530-fig2-F.jpg" width="1710" height="1280" alt="Figure 2 - Value Creation in a Co-Creative Enterprise" title="Figure 2 - Value Creation in a Co-Creative Enterprise" /></div></div></div><div class="field field-name-field-subtitle field-type-text field-label-above"><div class="field-label">Subtitle:&nbsp;</div><div class="field-items"><div class="field-item even">Partnering with customers in a new energy enterprise.</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/value-co-creation">value co-creation</a><span class="pur_comma">, </span><a href="/tags/andy-mckenna">Andy McKenna</a><span class="pur_comma">, </span><a href="/tags/ryan-cahill-sr">Ryan Cahill Sr.</a><span class="pur_comma">, </span><a href="/tags/pwc">PWC</a><span class="pur_comma">, </span><a href="/tags/pricewaterhousecoopers">PricewaterhouseCoopers</a><span class="pur_comma">, </span><a href="/tags/francis-gouillart">Francis Gouillart</a><span class="pur_comma">, </span><a href="/tags/experience-co-creation-partnership">Experience Co-Creation Partnership</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a> </div>
</div>
<div class="field field-name-field-intro-text field-type-text-long field-label-above"><div class="field-label">Intro Text:&nbsp;</div><div class="field-items"><div class="field-item even">Utilities are no longer a one-way business. The industry’s future growth will be found in value co-creation with customers.</div></div></div><div class="field field-name-field-publishing-date field-type-datetime field-label-above"><div class="field-label">Publishing Date:&nbsp;</div><div class="field-items"><div class="field-item even"><span class="date-display-single">Thursday, May 30, 2013 (All day)</span></div></div></div>Thu, 30 May 2013 17:30:52 +0000mburr16589 at http://www.fortnightly.comConnecting Before the Stormhttp://www.fortnightly.com/fortnightly/connecting-storm
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p><span style="line-height: 1.538em;">In the wake of Superstorm Sandy, utilities are already facing huge pressure to create smarter energy delivery and stronger infrastructure, all while keeping prices down. </span></p>
<p>But as Rahm Emmanuel famously said four years ago in the wake of the financial superstorm, “you never want a serious crisis to go to waste.” It’s important for utilities to understand that the extreme weather last fall not only underscores the need for operational improvements, it also introduces profound implications for how utilities communicate.</p>
<p>This goes way beyond the concept that utilities must communicate better during storms. This is about changing the way they communicate long after power is restored and the visible work ends. It’s about a new language – a comprehensive shift in how and when utilities reach customers, the words they use, and the way they frame the conversation. It’s an opportunity that utilities should embrace. </p>
<p>The need for this shift stems from the fact that customers don’t value the work utilities do each day. They take it for granted because energy is by nature a behind-the-scenes business. This is an industry of engineers who solve problems and don’t boast.</p>
<p>When everything is running smoothly most utilities see no need to communicate. The lights go on, and customers don’t think much about how or why. But that’s changing with violent weather. Everyone thinks about their electricity when a major storm knocks it out. Everyone asks questions. And in response utilities are playing catch-up to rebuild a positive dialogue with customers.</p>
<p>These same customers who ask the tough questions when their power is out don’t think of all the proactive work the industry does to keep homes, schools and hospitals up and running during normal weather. This is because no one is telling them about it. Utilities need to tell that story to regain public support and boost their perceived value. And they need a new language to tell it.</p>
<p>So how should utilities define this new language? While each utility is unique, the new language should embrace three principals: it should be active, consistent and positive. </p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Active Engagement</span></span></strong><br /><span style="line-height: 1.538em;">Active means establishing a deeper dialogue. Many utilities have started doing this through efficiency tips and tools. This type of proactive outreach must extend to the actual work utilities do every day. It must signal to customers that for utilities, the work never stops. As an example, utilities should highlight the role they’re taking in researching innovative ways to improve a community’s power supply. </span></p>
<p>In times of crisis, active means anticipating instead of responding. After a storm the papers flood with stories of customer complaints and angry mayors. And utilities mostly react. This dynamic must change to one where utilities actively push solutions and engage communities before their leaders come calling. An active position tells customers that their utility doesn’t just pop up each time a power line goes down or rates need adjustment. If nothing else, customers should know this: their utility is dedicated to helping protect the people of the towns and cities in its territory. </p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Consistent Messaging</span></span></strong><br /><span style="line-height: 1.538em;">Consistent means a steady drumbeat. It also means a lexicon that’s understood and embraced by the entire organization.</span></p>
<p>This is critical for utilities that hope to break through the clutter. Because most regulated utilities have tight marketing budgets, they’ll never be able to reach consumers like a major marketer. So they must build a positive foundation. They must prime the conversation because when disaster strikes, customers will search the Internet for information about it, talk to their friends and family, and vent on social networks. And if a utility hasn’t laid the groundwork, the conversation will be entirely defined on customers’ terms.</p>
<p>To lay the foundation, all utility personnel must deliver the same message – from linemen, to customer service reps, to the CEO. It’s not easy, but it gives utilities a fighting chance. </p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Positive Future</span></span></strong><br /><span style="line-height: 1.538em;">Finally, it’s about staying positive. In the context of violent weather, positive really means focusing on the future. Utilities can’t rest on their laurels. Customers want to hear visions for the future and what a utility is doing every day to make it happen. This is tough because many times the natural gaze of a utility is backwards. Rate cases are almost always about recovery costs, based on earlier test periods. Regardless, utilities have to find future-focused messages that people can get behind and deliver.</span></p>
<p>When customers ask “what happened?” utilities must remember that they’re actually asking “what will you do about it?” And only when customers feel their utility is charting a better, more positive path to the future will they believe that utility is a competent manager of the energy they need to run their lives. </p>
<p>Changing utility communication habits won’t be easy. Utility executives are a heads-down, hard-working crew. But if utilities are going to continue to operate as is, change needs to occur on many fronts. One of the most essential changes, and possibly the easiest one to make, is how they communicate. </p>
<p><strong><span style="color:#b22222;">ABOUT THE AUTHORS: </span></strong><em>Thayer Fox and Patrick Buckley are vice presidents at maslansky + partners, a public opinion and messaging strategy firm in New York. </em></p>
</div></div></div><div class="field field-name-field-import-deck field-type-text-long field-label-above"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even">The new language of utility communications, post-Sandy.</div></div></div><div class="field field-name-field-byline field-type-text field-label-above"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even">Thayer Fox and Patrick Buckley, Maslansky + Partners</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/Spark130227.jpg" width="400" height="255" alt="Connecting Before the Storm, by Thayer Fox and Patrick Buckley, maslansky + partners" /></div></div></div><div class="field field-name-field-subtitle field-type-text field-label-above"><div class="field-label">Subtitle:&nbsp;</div><div class="field-items"><div class="field-item even">The new language of utility communications, post-Sandy.</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/superstorm-sandy">Superstorm Sandy</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/communications">communications</a><span class="pur_comma">, </span><a href="/tags/customer-service">Customer service</a><span class="pur_comma">, </span><a href="/tags/outage-management">Outage management</a><span class="pur_comma">, </span><a href="/tags/cis">CIS</a><span class="pur_comma">, </span><a href="/tags/call-center">call center</a><span class="pur_comma">, </span><a href="/tags/social-media">Social media</a> </div>
</div>
<div class="field field-name-field-intro-text field-type-text-long field-label-above"><div class="field-label">Intro Text:&nbsp;</div><div class="field-items"><div class="field-item even">Effective crisis communications requires laying groundwork long before the damage happens. Successful engagement calls for consistent, positive messaging when the lights are on. </div></div></div><div class="field field-name-field-publishing-date field-type-datetime field-label-above"><div class="field-label">Publishing Date:&nbsp;</div><div class="field-items"><div class="field-item even"><span class="date-display-single">Wednesday, February 27, 2013 (All day)</span></div></div></div>Wed, 27 Feb 2013 16:40:49 +0000mburr16458 at http://www.fortnightly.comFranchise Fracashttp://www.fortnightly.com/fortnightly/2013/02/franchise-fracas
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Will Boulder be the last city to go muni? Don’t bet on it.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Michael T. Burr, Editor-in-Chief</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><strong>Michael T. Burr</strong> is <em>Fortnightly’s</em> editor-in-chief. Email him at <a href="mailto:burr@pur.com">burr@pur.com</a></p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - February 2013</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>When Administrative Law Judge Paul Gomez denied “with prejudice” Public Service Co. of Colorado’s (PSCo) petition to recover $16.6 million in cost overruns for its Boulder SmartGridCity pilot, the ruling marked the latest in a series of black eyes the utility has suffered over the project.</p>
<p>In a scathing mid-January decision,<strong><sup><a href="http://www.fortnightly.com/fortnightly/2013/02/franchise-fracas/page/0/2#1" title="1. PUC of Colorado Dkt. No. 11A-1001E, Decision No. R13-0096, Jan. 17, 2013.">1</a></sup></strong> Judge Gomez said the company had failed to prove the project’s extra costs were prudently incurred. He termed PSCo’s purported consumer benefits “meager,” and said its petition lacked “any showing of cost-effectiveness.”</p>
<p>In addition to forcing utility shareholders to absorb millions of dollars in capital costs, the judge’s decision provides fresh ammunition to Boulder community leaders who are working to oust the utility—an outcome that looks increasingly likely after a series of ballot initiatives ended PSCo’s franchise and gave the city council an apparent mandate for local control.</p>
<p>The Boulder story can be read as a cautionary tale for utilities that seek to innovate on behalf of their customers. But the same story can be read in other ways—producing less encouraging conclusions for utilities like PSCo and its parent company, Xcel. One such conclusion is this: when the goals of a utility and its host community aren’t in synch, that’s when breakups happen.</p>
<h4><b>Taxing Occupation</b></h4>
<p>Although Xcel selected Boulder for its SGC project in 2008, the whole story goes back to 2002. That’s the year the Boulder city council adopted the Kyoto Protocol and set a goal to reduce its greenhouse gas (GHG) emissions to 7 percent below 1990 levels by the year 2012. In 2006, Boulder voters approved a tax on electricity consumption to fund the city’s climate action plan. At about the same time, the city council hired R.W. Beck to study the feasibility of municipalizing the utility system to help Boulder achieve its environmental goals. </p>
<p>“We wanted to decarbonize our energy supply,” said Susan Osborne, Boulder city council member from 2007 through 2011, and mayor from 2009 to 2011, speaking last fall to a Minneapolis group that’s also considering municipalization. “About 65 percent of [Boulder’s] electricity is produced by a couple of coal-fired plants,” she said. “It became clear we’d never reach our Kyoto goal unless we did something about our energy supply.”</p>
<p>Soon after Boulder began exploring municipalization, Xcel proposed the SGC and promised a host of benefits for the city—including greater potential for conservation and renewable energy integration. The city liked the proposal, and so agreed to suspend its work on municipalization, pending the outcome of SGC.</p>
<p>Unfortunately, the Xcel project ran into trouble, including the defection of some vendor partners and even company executives. The utility’s share of the project’s cost, originally estimated at about $15 million, grew to $44.5 million—$16.6 million more than state regulators would allow. And perhaps most importantly, the project fell short of Boulder’s expectations, especially in terms of customer benefits.<strong><sup><a href="http://www.fortnightly.com/fortnightly/2013/02/franchise-fracas/page/0/2#2" title="2. “Xcel’s SmartGridCity Plan fails to connect with Boulder,” Denver Post, Oct. 28, 2012.">2</a></sup></strong></p>
<p>“There was very little that a consumer of electricity got out of the effort, even though it was hyped a lot when the city suspended municipalization talks,” Osborne said. In 2009, Boulder and Xcel began negotiating a new franchise, but those talks were destined for failure. “We wanted more local control of our energy use,” explained Osborne. So in 2010 the Boulder city council voted against putting a new franchise agreement on the ballot, instead asking voters to approve a pair of measures—one that levied a “utility occupation tax” to replace the franchise fee, and another authorizing bonds to fund municipalization efforts.</p>
<p>Both measures passed. At this writing Boulder seems intent on going muni, while at the same time leaving its options open, seeking to “partner” with Xcel on the city’s goals without committing to a 20-year franchise.<strong><sup><a href="http://www.fortnightly.com/fortnightly/2013/02/franchise-fracas/page/0/2#3" title="3. “City Council Round Table Discussion: Exploring Alternative Opportunities for Reaching Boulder’s Energy Future Goals,” Memo from Heather Bailey to Boulder City Council, Dec. 6, 2012.">3</a></sup></strong></p>
<h4><b>Competitive Transition</b></h4>
<p>On the surface, the Boulder case might seem unique, given the particulars of the SGC project. However, the municipalization phenomenon isn’t new—and it’s not over.</p>
<p>Most recently, around the year 2000, a wave of cities tried to municipalize utility assets. Those efforts were driven by various factors, the biggest being the competitive transition charges that some states added to utility bills to pay for retail deregulation and stranded-cost recovery; cities hoped to avoid those costs by dumping IOUs and creating munis. None of those efforts succeeded, but a few municipalizations prevailed for other reasons. Long Island Power Authority bought LILCO after the Shoreham nuclear failure and an extended outage following Hurricane Gloria. Hermiston, Ore., took over Pacificorp’s assets in 2001 because customers were unhappy with their service. And Winter Park, Fla., whose residents were angry over repeated outages, canceled Florida Power’s franchise and purchased its assets in 2005.</p>
<p>More recently, a few communities have begun pursuing municipalization for some of the same reasons that drove the trend a decade ago—plus some new ones.</p>
<p>• In Thurston County, Wash. (pop. 257,000), residents dissatisfied with Puget Sound Energy’s prices, service, and offshore ownership garnered enough signatures to put a municipalization question on the ballot in 2012. The measure failed, but proponents promise to keep trying.<strong><sup><a href="#4" title="4. http://www.thurstonpublicpower.org">4</a></sup></strong></p>
<p>• At the opposite corner of the country, South Daytona, Fla. (pop. 12,000) decided to municipalize after FPL in 2006 presented the city with a “nonnegotiable” franchise agreement that would’ve stripped out a purchase option like the one that allowed Winter Park to municipalize in the previous year.<strong><sup><a href="#5" title="5. Electric System Municipalization Feasibility Study, City of South Daytona, Jan. 30, 2012.">5</a></sup></strong> After several years of exploration, the city negotiated a buyout, but the deal was scuttled at the polls in November 2012.</p>
<p>• In Minnesota’s largest city, Minneapolis (pop. 388,000), utility franchises are set to expire for Xcel in 2014 and CenterPoint in 2015. A nonprofit group, Minneapolis Energy Options,<strong><sup><a href="#6" title="6. http://minneapolisenergyoptions.org">6</a></sup></strong> is working to put a question on the ballot this year that could end the franchises, or replace them with short-term agreements that would give the city time to explore alternatives. According to Dylan Kesti, campaign coordinator, the drivers are similar to those in Boulder. “The city’s climate action goals are in danger of being unmet, while emissions from the two utilities comprise two-thirds of the problem,” Kesti said. “The expiration of the franchise is a once-in-20-years opportunity to change that trajectory.”</p>
<p>Notably the Minneapolis group’s website observes that even if the city doesn’t go muni, raising the very prospect confers leverage in negotiating with the utilities. It’s also noteworthy that among recent municipalization efforts, none are happening in retail choice states, where communities are able to aggregate their load to negotiate better energy supply deals. For example, Chicago just joined at least 200 other Illinois cities and towns whose residents opted to aggregate.</p>
<p>The aggregation trend doesn’t challenge the utility franchise. But it does show that given a chance, local communities will take energy choices into their own hands. The impetus to do so is getting stronger—as outage events like those following Superstorm Sandy leave customers disgruntled, and as distributed resources make clean, local options increasingly viable. </p>
<p>In the end, companies that focus on helping communities achieve their goals might be more successful than those that concentrate on securing their franchises.</p>
<h4><b>Endnotes:</b></h4>
<p><a name="1" id="1"></a>1. PUC of Colorado Dkt. No. 11A-1001E, Decision No. R13-0096, Jan. 17, 2013.</p>
<p><a name="2" id="2"></a>2. <a href="http://www.denverpost.com/business/ci_21871552/xcels-smartgridcity-plan-fails-connect-boulder" target="_blank">“Xcel’s SmartGridCity Plan fails to connect with Boulder</a>,” Denver Post, Oct. 28, 2012.</p>
<p><a name="3" id="3"></a>3. “<a href="http://www.bouldercolorado.gov/files/Energy/2012/EF_Options_Dec2012.pdf" target="_blank">City Council Round Table Discussion: Exploring Alternative Opportunities for Reaching Boulder’s Energy Future Goals</a>,” Memo from Heather Bailey to Boulder City Council, Dec. 6, 2012.</p>
<p><a name="4" id="4"></a>4. <a href="http://www.thurstonpublicpower.org" target="_blank">http://www.thurstonpublicpower.org</a></p>
<p><a name="5" id="5"></a>5. <a href="http://www.southdaytona.org/egov/documents/13280310668692.pdf" target="_blank"><i>Electric System Municipalization Feasibility Study</i></a>, City of South Daytona, Jan. 30, 2012.</p>
<p><a name="6" id="6"></a>6. <a href="http://minneapolisenergyoptions.org" target="_blank">http://minneapolisenergyoptions.org</a></p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/commercial-industrial">Commercial &amp; Industrial</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/distributed-generation">Distributed Generation &amp; Microgrids</a></li><li class="taxonomy-term-reference-2"><a href="/article-categories/customer-engagement">Customer Engagement</a></li><li class="taxonomy-term-reference-3"><a href="/article-categories/dr-conservation">DR &amp; Conservation</a></li><li class="taxonomy-term-reference-4"><a href="/article-categories/retail-markets">Retail Markets</a></li><li class="taxonomy-term-reference-5"><a href="/article-categories/states">The States</a></li><li class="taxonomy-term-reference-6"><a href="/article-categories/rate-cases">Rate Cases</a></li><li class="taxonomy-term-reference-7"><a href="/article-categories/strategy-planning">Strategy &amp; Planning</a></li><li class="taxonomy-term-reference-8"><a href="/article-categories/smart-grid">Smart Grid</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-department field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Department: </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/department/frontlines">Frontlines</a></li></ul></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1302-FR.jpg" width="762" height="445" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/boulder">Boulder</a><span class="pur_comma">, </span><a href="/tags/municipalization">municipalization</a><span class="pur_comma">, </span><a href="/tags/utility-franchise">utility franchise</a><span class="pur_comma">, </span><a href="/tags/xcel">Xcel</a><span class="pur_comma">, </span><a href="/tags/public-service-company-colorado">Public Service Company of Colorado</a><span class="pur_comma">, </span><a href="/tags/minneapolis">Minneapolis</a><span class="pur_comma">, </span><a href="/tags/paul-gomez">Paul Gomez</a><span class="pur_comma">, </span><a href="/tags/susan-osborne">Susan Osborne</a><span class="pur_comma">, </span><a href="/tags/winter-park">Winter Park</a><span class="pur_comma">, </span><a href="/tags/lilco">LILCO</a><span class="pur_comma">, </span><a href="/tags/lipa">LIPA</a><span class="pur_comma">, </span><a href="/tags/long-island-power-authority">Long Island Power Authority</a><span class="pur_comma">, </span><a href="/tags/shoreham">Shoreham</a><span class="pur_comma">, </span><a href="/tags/hurricane-gloria">Hurricane Gloria</a><span class="pur_comma">, </span><a href="/tags/hermiston">Hermiston</a><span class="pur_comma">, </span><a href="/tags/superstorm-sandy">Superstorm Sandy</a><span class="pur_comma">, </span><a href="/tags/dylan-kesti">Dylan Kesti</a><span class="pur_comma">, </span><a href="/tags/aggregation">aggregation</a><span class="pur_comma">, </span><a href="/tags/smart-grid">Smart grid</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/microgrid">Microgrid</a> </div>
</div>
Tue, 29 Jan 2013 01:31:57 +0000meacott16411 at http://www.fortnightly.comSet and Forgethttp://www.fortnightly.com/fortnightly/set-and-forget
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p><span style="line-height: 1.538em;">Change is in the air. </span></p>
<p><span style="line-height: 1.538em;">Demand response technology has enabled utilities, grid operators, and commercial and industrial energy users to control their power consumption for 30 years and counting. At times when peak demand threatens grid reliability or prices soar, demand response (DR) has acted as a critical and reliable resource, an intervention that subverts catastrophic grid shut-downs and ballooning bills. </span><span style="line-height: 1.538em;">None of this capability has changed.</span></p>
<p>What has changed is the way utilities can approach and execute DR programs. Now, in addition to using them to mitigate emergency situations, utilities rely on DR technologies to meet comprehensive conservation mandates and act as a focal point for other smart grid initiatives. To meet this increased scope, sophisticated DR programs are now focused on helping utilities both manage demand and increase customer engagement.</p>
<p>This new phase of DR brings not only an evolution in energy management practices, but also in customer relations. As the benefits of the smart grid are beginning to be realized, the industry has reached a crossroads and it’s heading down a different path, armed with the knowledge gained from recent DR programs. For example, <a href="http://www.comverge.com/newsroom/comverge-press-releases/2012/Comverge-to-Expand-Pepco-Holdings-Inc--Demand-Resp" target="_blank">Pepco Holdings Inc.</a> has enrolled 150,000 customers as part of one of the largest DR programs in the nation. The Energy Wise Rewards program is expected to enroll a total of 300,000 participants, allowing them to take more control over their energy usage, save money, and move toward a more sustainable lifestyle. Another DR program is <a href="http://www.comverge.com/newsroom/comverge-press-releases/2012/Comverge-Helps-Gulf-Power-Achieve-Industry-Milesto" target="_blank">being deployed by Gulf Power</a>. The Florida utility has achieved a 97 percent satisfaction rate by helping 87 percent of participating customers lower their electricity usage through dynamic pricing initiatives coupled with automation to respond to those prices. These results are being achieved through the new two-way capabilities of demand response.</p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Two-way Communication</span></span></strong><br /><span style="line-height: 1.538em;">In the past, demand response was similar to many other utility-run programs as it was almost entirely a one-way conversation from the utility to the energy customer.</span></p>
<p>In contrast to one-way communication, today’s demand response is beginning to employ two-way communication between consumers and utilities, keeping customers informed, engaging them in managing their energy consumption, and helping them tailor their DR participation and other energy efficiency programs to fit their budgets and power needs.</p>
<p>To make this possible, DR platforms are now integrating seamlessly with other energy information and management tools, with which consumers have become increasingly familiar. Residents and businesses are working with interactive on-line portals to help them better understand their energy use, and are using devices like programmable thermostats to manage energy choices. In the short term, this allows consumers to do things like set energy efficiency goals and easily monitor their progress. In the longer term, by integrating traditional DR programs with consumer engagement, utilities can reduce both peak demand and base load. In the process, they’ll be creating more engaged and ultimately happier consumers.</p>
<p>Further, by interacting directly with consumers, utilities gain insight into the demand needs they must meet, and the flexibility that consumers might have in their usage patterns. Utilities can use this knowledge to further optimize energy delivery. This kind of interaction carries through to other efforts of demand response, including financials and pricing.</p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Dynamic Pricing</span></span></strong><br /><span style="line-height: 1.538em;">Following the old model for direct load control programs, customers would receive financial incentives in exchange for their participation in DR programs, but this was typically a fixed amount that was tied to the level of participation they initially agreed to.</span></p>
<p>New DR pricing structures and AMI usage data open doors to incentives based on performance or price, which allow and encourage consumers to better manage their energy use. The key to these platforms’ success is flexibility: they offer an array of options, as there’s no one-size-fits-all approach. For example, utilities can provide pricing plans like peak time rebate (PTR) programs that reward customers for voluntarily reducing consumption during peak or other pre-determined times. Another option is to implement critical peak pricing (CPP) plans that work more like penalties, charging more if customers don’t opt to make certain power reductions. In practice, a combination of the different pricing strategies tends to work best, as it lets consumers make the choice about how they want to engage in energy conservation. But in all cases, consumers perform better and exhibit higher satisfaction when automation is available to aid the response. A set-and-forget choice, as demonstrated in the Gulf system, provides better satisfaction to customers and more reliable load drop to the utility.</p>
<p>The two-way communication infrastructures that now are built into sophisticated DR technologies make dynamic pricing programs such as PTR or CPP manageable and affordable for utilities. Web-based control panels that can be accessed across a range of different devices – computers, smart phones, tablets etc. – facilitate dialogue and deliver variations on pricing structures to different customers, all at the same time.</p>
<p>One of the most significant benefits of two-way programs for consumers and utilities is automation. The web portals, smart thermostats, and smart switches now available to consumers allow them to set a control schedule for all high-energy use appliances, such as air conditioners, pool pumps, and water heaters. This set-and-forget capability makes it easy for customers to participate, and also provides a more predictable load drop as the two-way automated information exchange enables a utility to aggregate all adjustments to a participant’s control schedules, providing advanced insight into the capacity made available by all program participants. As a <a href="http://www.brattle.com/AreasExpertise/IndustryPracticeAreas/Expertise.asp?ExpertiseID=64&amp;SubItemID=115" target="_blank">recent Brattle Group study</a> has shown, using technology to automate dynamic pricing programs can deliver approximately a 40 percent increase in peak demand reduction, as opposed to relying on the consumer to manually reduce demand.</p>
<p><strong><span style="font-size:16px;"><span style="color: rgb(178, 34, 34);">Collaborative Effort</span></span></strong><br /><span style="line-height: 1.538em;">As public opinion and government influence continue to press for increased energy consciousness, demand response no doubt will remain a crucial piece of the energy management puzzle, as it has a tried-and-true reputation. But the demand response in action in the future will succeed in meeting energy reduction targets because of the work that regulators, utilities, and customers do together. Two-way communication, energy efficiency initiatives, and innovative energy management programs like dynamic pricing set the stage for consumers to fully engage in their energy management. Smart grid technology makes this level of cooperation possible, bridging utilities and consumers in a way that puts them in sync, eliminating the at-odds feeling of yesteryear and maximizing the potential to cost-effectively, reliably and sustainably deliver power to the masses.</span></p>
<p><span style="color:#b22222;"><strong>ABOUT THE AUTHOR:</strong></span> R. Blake Young is president and chief executive officer of Comverge.</p>
</div></div></div><div class="field field-name-field-import-deck field-type-text-long field-label-above"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even">Engagement and automation are expanding the role of DR.</div></div></div><div class="field field-name-field-byline field-type-text field-label-above"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even">By R. Blake Young, Comverge</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/set-and-forget.jpg" width="400" height="255" alt="Engagement and automation are expanding the role of demand response (DR)." /></div></div></div><div class="field field-name-field-subtitle field-type-text field-label-above"><div class="field-label">Subtitle:&nbsp;</div><div class="field-items"><div class="field-item even">Engagement and automation are expanding the role of DR.</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/demand-response">Demand response</a><span class="pur_comma">, </span><a href="/tags/dr">DR</a><span class="pur_comma">, </span><a href="/tags/direct-load-control">Direct load control</a><span class="pur_comma">, </span><a href="/tags/dlc">DLC</a><span class="pur_comma">, </span><a href="/tags/advanced-metering-infrastructure">Advanced metering infrastructure</a><span class="pur_comma">, </span><a href="/tags/ami">AMI</a><span class="pur_comma">, </span><a href="/tags/comverge">Comverge</a><span class="pur_comma">, </span><a href="/tags/r-blake-young">R. Blake Young</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/automation">automation</a><span class="pur_comma">, </span><a href="/tags/set-it-and-forget-it">set it and forget it</a> </div>
</div>
<div class="field field-name-field-intro-text field-type-text-long field-label-above"><div class="field-label">Intro Text:&nbsp;</div><div class="field-items"><div class="field-item even">The underlying premise of demand response hasn’t changed in 30 years, but the technologies and approaches to executing DR programs today are worlds away from the basic, one-way load control programs of yesteryear. Engagement and automation are changing everything.</div></div></div><div class="field field-name-field-publishing-date field-type-datetime field-label-above"><div class="field-label">Publishing Date:&nbsp;</div><div class="field-items"><div class="field-item even"><span class="date-display-single">Thursday, January 31, 2013 (All day)</span></div></div></div>Thu, 24 Jan 2013 17:57:21 +0000mburr16404 at http://www.fortnightly.comLearning from Retailershttp://www.fortnightly.com/fortnightly/learning-retailers
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>As the electricity market changes and consumers become more energy independent, utilities will have to become far more creative and proactive to keep their customers happy.</p>
<p>This industry is changing – fast. More and more customers are going solar, buying electric vehicles, and aiming to reduce their energy bills or eliminate them entirely. Furthermore, energy monitoring web portals, energy management devices and smart appliances are being deployed in millions of homes. This all adds up to a connected, savvy, and far more demanding energy consumer.</p>
<p>For most investor owned utilities (IOU), the issue isn’t quite at their doorstep yet, but electricity retailers already are dealing with churn in their consumer base. In fact, customers can – and do – switch providers at the drop of a hat. With consumers across all energy markets asking for more choice and control over their energy purchasing decisions, utilities everywhere – not just retailers – will need to adapt to remain relevant. This is why, for the energy industry overall, what retailers are doing now could provide a template for what all utilities will need to do to differentiate themselves in the near future.</p>
<p><span style="font-size:16px;"><span style="color: rgb(178, 34, 34); "><strong>Creative Conservation</strong></span></span></p>
<p>So far in the U.S., at least 25 states have set specific goals for reductions in energy use. In 2010, the total budget for utility customer energy efficiency programs was $4.6 billion, more than four times the $1.1 billion spent on such programs a decade earlier, according to the American Council for an Energy-Efficient Economy. These figures underscore the importance of energy efficiency, and serve as a call for action for energy providers. Successful companies will adopt creative ways to increase consumer engagement in programs that can help utilities meet reduction goals, especially when taxpayer dollars have been allocated to help them do so.</p>
<p>Because retailers are under pressure to acquire, retain and improve the lifetime value of customers, competitive offerings – such as energy monitoring tools and renewable energy – are becoming a core part of their business. Over the long-term, retailers also are interested in moving their consumers up the energy value chain, in order to unlock the value of the emerging energy marketplace. While these retailers might start with energy efficiency tools, their ultimate objective is to establish a long-term, two-way dialogue that will lead to success with future programs such as demand response, direct load control and, eventually, whole home orchestration.</p>
<p>Looking at Australia – which has some of the world’s most mature competitive electricity markets – Origin Energy is a prime example of a retailer taking the necessary steps to tailor offerings to the needs of customers. Operating in an unregulated energy market with the potential for significant customer churn, Origin focuses on providing leading-edge technology as a differentiator, and demonstrates a commitment to its customers’ satisfaction.</p>
<p>In 2011, Origin launched Origin Index, a national survey on Australians’ attitudes towards energy and the environment. The survey found that Australians are confused about the impact they can have on their bills and the environment, with 93 percent stating they wanted to be more focused on implementing sustainable solutions in the home, and more than half struggling to make the correlation between energy consumption behavioral change and the resulting impact on the environment.</p>
<p><span style="font-size:18px;"><strong>Customer motivation stems from<br />setting goals and tracking progress.</strong></span></p>
<p>Origin saw this lack of understanding as a chance to help its customers, and launched its home energy management system, Origin Smart, to help address the issue. The new system applies psychological and behavior principles, such as tracking use in order to come up with achievable goals, or leveraging competition to address the challenge of reducing energy usage. The program, available via an online web portal, provides visibility on how much power the customer’s home is using on an hourly and daily basis, enables customers to track their energy use over time, lets them compare consumption to similar households, and provides access to experts in energy efficiency.</p>
<p>In this program, customer motivation stems from being able to set savings goals and track progress. The system provides customers with three steps – setting goals, taking action, and reviewing feedback. In this instance, the goal could be to cut energy usage by 10 percent. The action involves tips and hints the system suggests. And feedback comes from the updates of energy usage and other information available through the system, and comparisons with other households in similar situations. Ultimately, it provides customers with a supportive learning environment, which aims to enlist the persistent active participation of consumers in managing their home energy use.</p>
<p>Back in the ’States, we’re seeing the same thing. In deregulated regions, companies like Duke Energy are employing the same sort of tactics grounded in behavioral and cognitive psychology to encourage energy efficiency. Across the country Duke and other energy providers are using social media, competitive games, and data analysis tools to help consumers better manage their energy use. Last summer, for instance, Duke produced a series of videos casting a fictitious family employing different and creative methods of saving energy. Other utilities have sponsored “hackathons” for software developers to come up with the best energy saving app, or hosted competitions for consumers to outdo their neighbors in terms of energy savings.</p>
<p><span style="font-size:16px;"><span style="color: rgb(178, 34, 34); "><strong>Lessons from Early Adopters</strong></span></span></p>
<p>For retailers now, and the rest of the energy industry soon, there’s significant new market opportunity to establish a dialogue with customers and learn more about what they want in regards to energy efficiency products and services, as well as smarter appliances and compelling apps. Some customers will want a completely automated home with a half-dozen smart devices; others might not care enough to change, while many will simply want to reduce their energy bills. Understanding the needs of the customer base is the first step in establishing and providing them with a unique solution in order to avoid apathy toward home energy management.</p>
<p><span style="font-size:18px;"><strong>Utilities aren't typically early adopters of technology,<br />but they can become innovators in consumer engagement.</strong></span></p>
<p>When it comes to customer interaction and relationship building, times are a-changing. Utilities need only to look to their energy retailer brethren to understand that consumers care about energy and efficiency, and that the providers delivering the best service and choice will win out in the long run. This might require a business model shift and education of regulators in regulated markets, but the gains could be immense and create a more mutually beneficial environment than today’s regulatory-driven, rate case approach to energy service innovation.</p>
<p>Overall, the lesson the energy industry should take from energy retailers is that there is no single solution for everyone. There needs to be a two-way dialogue between customers and utilities. Though utilities aren’t typically early adopters of technology, they can become cutting-edge innovators in consumer engagement. Consumers need utilities, and utilities need their customers; that relationship is a powerful business driver, provided there’s a way to make those needs align in common goals. Energy retailers have learned how to do that in competitive markets. Given the projected direction and growth of the market, investor-owned utilities eventually will follow suit.</p>
<p><strong><span style="color:#b22222;">ABOUT THE AUTHOR:</span> </strong><em>Adrian Tuck is CEO of Tendril, which provides energy customer engagement applications and services.</em></p>
</div></div></div><div class="field field-name-field-import-deck field-type-text-long field-label-above"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even">Competition and technology could transform the industry.</div></div></div><div class="field field-name-field-byline field-type-text field-label-above"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even">By Adrian Tuck, Tendril</div></div></div><div class="field field-name-field-import-image field-type-image field-label-above"><div class="field-label">Image:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/coalmine.jpg" width="400" height="250" alt="" /></div></div></div><div class="field field-name-field-subtitle field-type-text field-label-above"><div class="field-label">Subtitle:&nbsp;</div><div class="field-items"><div class="field-item even">Competition and technology could transform the industry.</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/customer-service">Customer service</a><span class="pur_comma">, </span><a href="/tags/retail-competition">Retail competition</a><span class="pur_comma">, </span><a href="/tags/deregulation">Deregulation</a><span class="pur_comma">, </span><a href="/tags/tendril">Tendril</a><span class="pur_comma">, </span><a href="/tags/adrian-tuck">Adrian Tuck</a><span class="pur_comma">, </span><a href="/tags/duke-energy">Duke Energy</a><span class="pur_comma">, </span><a href="/tags/origin-energy">Origin Energy</a> </div>
</div>
<div class="field field-name-field-intro-text field-type-text-long field-label-above"><div class="field-label">Intro Text:&nbsp;</div><div class="field-items"><div class="field-item even">Success in retail energy markets requires providing customers with the best choices and the best service. Utilities can learn valuable lessons from the experiences of competitive electricity retailers.</div></div></div><div class="field field-name-field-publishing-date field-type-datetime field-label-above"><div class="field-label">Publishing Date:&nbsp;</div><div class="field-items"><div class="field-item even"><span class="date-display-single">Thursday, September 27, 2012 (All day)</span></div></div></div>Thu, 27 Sep 2012 18:58:31 +0000mburr14769 at http://www.fortnightly.comThe Fortnightly 40 Best Energy Companieshttp://www.fortnightly.com/fortnightly/2012/09/fortnightly-40-best-energy-companies
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>A challenging year brings a change in the rankings.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Michael T. Burr</p>
</div></div></div><div class="field field-name-field-import-category field-type-text field-label-inline clearfix"><div class="field-label">Category:&nbsp;</div><div class="field-items"><div class="field-item even">The &lt;i&gt;Fortnightly 40&lt;/i&gt; Best Energy Companies</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Michael T. Burr</b> is <i>Fortnightly’s</i> editor-in-chief. He acknowledges the editorial contributions of the C Three Group and Accenture.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">Fortnightly Magazine - September 2012</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>If the <i>Fortnightly 40</i> report tells us nothing else about the U.S. utility industry, it reminds us about two immutable facts.</p>
<p>First, after all is said and done—after all the strategic positioning and planning, after all the talk of transformation and customer engagement—utility financial performance comes down to customer demand for energy. If demand is flat, then utility performance will be flat.</p>
<p>Second, it reminds us that utilities are the quintessential asset business. Power and gas companies really have only one way to deliver greater value for shareholders, and that’s by growing the asset base—either through expansions or acquisitions.</p>
<p>If these facts sometimes get lost in the haze, this year’s <i>Fortnightly 40</i> brings them into stark relief. In 2011, meager economic growth combined with a warm winter to yield flat demand in most parts of the country. Accordingly, the industry’s production levels sank, and returns suffered. Specifically, U.S. electric output fell by 0.6 percent overall, compared to 2010 production. And the industry’s average return on assets (ROA) dipped to its lowest level—2.4 percent—since <i>Fortnightly</i> began keeping track in 2006 <i>(see Figure 6).</i> Trends in return on equity (ROE) <i>(see Figure 7) </i>and free cash flow tell similar stories.</p>
<div>At the same time, however, companies have pumped up their capital spending programs—perhaps in a bid to invest their way out of the doldrums. The industry spent $89 billion in 2011—9.4 percent more than it did in 2010, matching the previous record high mark in 2008. The <i>F40</i> companies invested $49 billion—a 16.3-percent increase, and $2 billion more than they ever have before. Some of these assets are needed to serve new load, but the lion’s share involves either plant replacements or reliability upgrades, most notably with new transmission lines.</div>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-F40-Fig1.pdf" target="_blank"><img align="left" alt="Figure 1" border="0" height="228" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig1b.jpg" width="332" /></a></p>
<p>“How do you make money as an investor-owned utility? You put more assets into the ground,” says Jean Reaves Rollins, managing partner of the C Three Group in Atlanta, which developed the <i>Fortnightly 40</i> model and provides financial analysis for each year’s report. “There’s a huge rush to build electric transmission projects, and utilities are busy working on gas pipeline replacement programs, especially in older service areas. In the near term these investments hurt cash flow, but in the long term they increase the rate base.”</p>
<p>Amid these facts, however, the industry’s financial leaders also demonstrate the importance of effective operational execution. “A lot of it is nuts and bolts,” says Caroline Dorsa, CFO and executive vice president at Public Service Enterprise Group—this year’s #2, and among the top 10 for three years running. “When you’re an operationally excellent company, focusing on delivering for your customers, you’ll get new opportunities. But the best planning in the world doesn’t do anything if you don’t deliver operational performance.”</p>
<p>The need for solid blocking and tackling becomes even more important when times are challenging, like they’ve been lately. And those challenges seem unlikely to abate any time soon. Even when demand rebounds, utilities still will be dealing with major changes affecting the core of their business proposition—from uncertain environmental policies to a historic shift away from coal and toward natural gas in the resource mix. Thus the industry’s financial winners and losers ultimately will be differentiated by their operational performance.</p>
<p>“Positioning in the value chain is key, but execution is just as critical,” says Jack Azagury, Accenture’s North American Management Consulting lead for the resources industries. “And the more volatile the industry environment—the more change you’re subjected to—the more critical execution is.”</p>
<h4>Making Big Moves</h4>
<p><a href="http://www.fortnightly.com/fortnightly/2011/09/40-best-energy-companies">Last year’s <i>Fortnightly 40</i> report</a> highlighted a slow pace of change in the industry, in terms of which companies provide the strongest returns for shareholders. We called it a “veritable showcase of the industry’s stability,” and pointed out that among the top 10 companies, only two names changed—one of them being Mirant, which disappeared when it merged with RRI Energy to become GenOn (this year’s #33). The 2012 ranking still showcases the industry’s stability, as most companies in the top 40 have held onto their positions—give or take a few places <i>(see Figures 2 and 3).</i> For instance, Exelon moves up from its previous #2 position into the #1 spot, Public Service Enterprise Group (PSEG) goes from #6 to #2, Energen goes from #4 to #3, etc.</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig2.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 2" border="0" height="426" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig2a.jpg" title="Figure 2" width="342" /></a></p>
<p>However, a closer look reveals some remarkable and even dramatic moves. For example, DPL—which had claimed the #1 spot for three years running—was acquired by AES last year, and AES in turn takes the #8 position in this year’s <i>F40,</i> up from #28 last year. This is the first year AES has ranked higher than the high 20s—a remarkable jump in rank from one year to the next. And AES’s ascent was unrelated to its DPL acquisition, since the utility’s numbers weren’t integrated into AES until 2012.</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig3.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 3" border="0" height="426" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig3a.jpg" title="Figure 3" width="342" /></a></p>
<p>Likewise, Centerpoint Energy jumped from its previous #30 position into this year’s #6. And less dramatic, but still remarkable, is NextEra Energy’s ascent to the #5 spot, up from last year’s #11 position, and #29 before that. Also, Pinnacle West leaped onto the <i>F40</i> for the first time, coming in at #29.</p>
<p>A few companies, meanwhile, slid substantially in the rankings—several of which recently completed big mergers and acquisitions (M&amp;A). Consider PPL, which has firmly held positions in the top 5 every year since 2006, and this year slips back to #10—still an outstanding ranking, to be sure, but a noteworthy drop for the perennial leader. PPL’s decline might be related, in part, to the effects of acquiring E.On US, which owns Louisville Gas &amp; Electric and Kentucky Utilities. Another example is AGL Resources, #12 last year, sinking to #26 this year after acquiring Nicor, last year’s #29. But perhaps most notable is FirstEnergy’s decline from #14 last year to #40 this year, after it acquired Allegheny Energy.</p>
<p>But not all the declines are related to merger hangovers. National Fuel Gas has always been in the <i>F40</i> top 10, but this year it sank to #13. Same with Gas Natural (formerly Energy West)—last year’s #10, now coming in at #14. A few others suffered steeper drops; examples include South Jersey Industries, TECO Energy, and DTE. And some companies dropped out of the top 40 altogether, including: RGC Resources, #30 last year; Edison International, #33; Alliant, #37; and Northwest Natural Gas, #38.</p>
<p>The <i>F40</i> is based on a four-year model, using multiple metrics, which should moderate the effects of one-time events. So when many companies’ ranks are abruptly changing, it suggests something big is happening. Aside from extraordinary costs related to mergers, no single reason can explain the overall volatility in performance; different companies are differently affected by the forces that are battering all players in the business. However, two factors seem to be having a particularly substantive effect on many companies’ performance. First is exposure to fuel prices, both natural gas and coal. And second is the opportunity to invest in infrastructure, especially transmission lines.</p>
<h4>Coal, Copper, and Cash in the Bank</h4>
<p>On the fuel side of the equation, price risk weighs heavily on financial performance. Pure-play utilities, including distribution companies and integrated utilities with their generation assets in a regulated rate base, are relatively insulated from the industry’s fuel shift. But to the degree a company’s fortunes depend on market prices for natural gas or electricity, its profits and returns generally are suffering. Examples include the aforementioned National Fuel Gas, and also EQT (now #36, previously #30); as well as NRG, GenOn, and also FirstEnergy—whose acquisition of Allegheny Energy included a coal-heavy power fleet, selling into PJM.</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig4.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 4" border="0" height="395" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig4a.jpg" title="Figure 4" width="342" /></a></p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig5.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 5" border="0" height="258" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig5a.jpg" title="Figure 5" width="342" /></a></p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig6.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 6" border="0" height="234" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Fig6a.jpg" title="Figure 6" width="342" /></a></p>
<p>Fuel price risks aren’t only affecting merchant players. Regulated companies with heavy reliance on coal-fired assets also have suffered, as price trends have put their assets out of the market. “Anyone with big exposure to coal has gotten killed,” says Reaves Rollins of the C Three Group. “With gas prices as low as they are, the way companies have been operating their power plants is just bizarre. They’ve been running gas-fired peaking units flat-out, 24/7, while baseload coal-fired plants are sitting idle.”</p>
<p>Indeed, during the past year, natural gas for the first time displaced coal as the biggest fuel source for power generation in the United States. Southern Company, for example, previously dependent on coal for 70 percent or more of its generation, now burns natural gas for 50 percent of its power, and runs its coal boilers half as much as it used to. The imbalance of coal and gas in its portfolio, combined with Southern’s large capital program, has weighed on the company’s cash flow and kept its <i>F40</i> rating in the 20s—where it’s been for three years, after holding positions between #11 and #8 every year before that.</p>
<p>The second factor involves transmission development, which is happening at a remarkable pace across the country. For example, Edison International—the industry’s leader in terms of capital spending <i>(see Figure 5)</i>—is directing half of its capital budget toward transmission. Southern Company, the number-two spender, is investing more than $4 billion on transmission upgrades. Xcel and Dominion plan to spend $3.8 billion and $2.4 billion, respectively, on transmission—34 percent and 22 percent of their capex budgets.</p>
<p>Transmission investments are providing utilities an opportunity to pursue asset growth during otherwise lean times. “During the 2000s, investor-owned utilities made money through organic growth,” Reaves Rollins says. “They were adding meters left and right. But after the housing crash in 2007 and 2008, suddenly there’s no growth, and no distribution expansion. Building generation can be risky. But you have NERC saying the grid must be more reliable, and FERC approving excellent returns on projects under their jurisdiction. Many transmission projects are like cash in the bank.”</p>
<p>Such investments haven’t yet buoyed companies in the <i>F40</i> rankings—except for ITC, of course, which enters the top 40 this year at #27—but several are reaping profits. For example, Sempra (#20) says its earnings from SDG&amp;E increased by fully one-third, primarily on the strength of higher earnings from the utility’s Sunrise Powerlink transmission line. And AEP (#24) forecasts that by 2015, 39 percent of its earnings will be derived from its transmission businesses.</p>
<p>As strong as these trends appear to be, however, every company’s market position is different, and each is pursuing a different strategy to deliver shareholder value at a tumultuous time for the industry. “We’re entering a period of unprecedented change in this industry in the next 10 years,” Azagury says. “The economic, regulatory, and commodity issues will remain challenging, and the technology changes will be no less challenging. The advent of photovoltaics (PV) and electric vehicles (EV) will create challenges especially for distribution utilities.”</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig7.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 7" border="0" height="260" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Fig7a.jpg" title="Figure 7" width="342" /></a></p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig8.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 8" border="0" height="236" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig8a.jpg" title="Figure 8" width="342" /></a></p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig9.jpg" style="text-decoration: underline; " target="_blank"><img align="right" alt="“Figure 9" border="0" height="380" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-fig9a.jpg" title="Figure 9" width="342" /></a></p>
<p>As this year’s <i>F40</i> leaders demonstrate, the key to success is to invest capital in a disciplined way—toward assets that serve the needs of customers first and foremost—and to manage those assets as efficiently as possible. Because after all, in the long term, front-line operations ultimately will make or break a utility company’s value proposition.</p>
<h4>AES: Platform Jumping</h4>
<p>AES achieved its performance by producing the industry’s best ROE and sustainable growth figures over the past four years, as well as the 7th-best ROA and the 16th-strongest profit margin. Its ranking was weighed down by the facts that AES doesn’t issue dividends, and its free cash flow ranks 37th on our list.</p>
<p>Looking beyond the numbers, it becomes apparent that AES also is a strategic outlier in the industry, because a large share of its earnings and assets are in fact located outside the United States. That’s also the basis for the company’s strong growth profile, compared to the rest of the <i>F40.</i> “Over the past four years we’ve had good growth in our Latin American companies,” says Andrés Gluski, CEO at AES. “The largest is AES Gener in Chile, which experienced CAGRS exceeding 20 percent in that time period. We also did very well in Brazil.” Gluski himself hails from Venezuela, where he led La Electricidad de Caracas before joining AES.</p>
<p>Looking beyond the regional picture, Gluski attributes the company’s strong growth and returns to its power generation investments in multiple markets. “We’ve built a number of new plants in Chile, Panama, and Bulgaria,” he says. “We also built some wind capacity in the United States. We’ve been very efficient in terms of building our fleet, operating it more effectively—and selling off the assets that didn’t fit our model.” Recently the company sold 222 MW of wind generating assets in France, and earlier this year it sold a 1,199-MW gas-fired combined-cycle plant in Spain, as well as combined-cycle plants in New Jersey and Pennsylvania, totaling another 1,537 MW. The company’s AES Eastern Energy subsidiary filed for chapter 11 bankruptcy protection in January 2012, a move that AES says won’t affect its outlook. AES Eastern operates four power plants in New York, totaling about 1,000 MW, acquired in May 1999 from New York State Electric &amp; Gas.</p>
<p>Gluski says AES’s plant divestitures are part of its effort to redeploy capital into areas that allow the company to build on its strongest businesses. <i>“W</i>e want to be in less markets than we have been in the past,” he says. “We’re selling out of markets where we don’t think we have a competitive advantage.” Chief among those advantages, he says, is the ability to achieve economies of scale. “We buy about $2 billion worth of coal around the world. By aggregating that, we can work on blending different coals, adjusting contracts with suppliers in different regions, and getting lower freight costs. Even a 5 or 10 percent improvement can increase returns substantially for our coal plants.”</p>
<p>The company’s strategy isn’t just about power plants, however—and that’s a departure from its early roots as a pure-play independent power developer. “AES’s value proposition used to be about building power plants anyplace we could get a contract,” Gluski says. “Now, with all the changes around the world, it’s more difficult to build IPPs, and so we’re moving toward a value proposition based on platforms—having a critical presence in key markets.” The company’s acquisition of DPL last year, and Indianapolis Power &amp; Light in 2000, are part of that strategic approach. “What differentiates AES is how we take our unmatched footprint to create a value proposition for the customers we serve,” Gluski says. “We have a unique footprint in some great markets, and we are focused on building from those existing platforms.”</p>
<p>And the fact that it still doesn’t pay a dividend doesn’t bother most investors, who are satisfied with the value they receive from a company whose strategy is oriented toward consistently strong returns and stable growth instead of producing annual payouts.</p>
<h4>El Paso Electric: Pure-Play Performance</h4>
<p>Like AES, El Paso Electric has ascended dramatically in the <i>F40</i> this year—rising to #12 from its earlier position in the 20s and 30s. But that’s about where the similarity ends.</p>
<p>El Paso Electric is a pure-play integrated utility serving West Texas and southern New Mexico. Its strong showing this year is attributable to its sustainable growth (#4) as well as solid ROE and ROA performance. But a key factor that might otherwise go unnoticed is the company’s dividend yield. While the 0.48 percent yield is very low by industry standards, El Paso Electric’s dividend is remarkable because it’s the first one the company has issued since the company emerged from bankruptcy in 1996.</p>
<p>“Over 10 years coming out of bankruptcy, we were able to reduce our debt and build up our equity,” says David Carpenter, CFO. In 2010, the company’s rate case ended a rate freeze that had lasted about 15 years, allowing the company to increase rates to pay for plant investments. At the same time, it rolled into rate base those assets that generated off-system sales—which according to Carpenter had tied the company’s earnings to market prices. “When we took away that commodity risk, we felt our earnings were more stable, so we issued a dividend to shareholders—22 cents a share in 2011, increasing to 25 cents per share in 2012,” he says.</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Carpenter.jpg" style="text-decoration: underline; " target="_blank"><img align="left" alt="“We don’t want to add capacity in lumps and have excess generation.” - David Carpenter, El Paso Electric" border="0" height="522" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Carpenter2.jpg" title="“We don’t want to add capacity in lumps and have excess generation.” - David Carpenter, El Paso Electric" width="342" /></a></p>
<p>The company expects to continue growing its dividend, targeting a payout ratio of about 45 percent. This outlook is justified by solid growth rates in the El Paso Electric service territory—particularly at Fort Bliss, a major U.S. Army base that’s grown from 9,500 to 30,000 soldiers since 2007—and with billions in additional infrastructure. “That has benefited us with a multiplier effect,” Carpenter says. “You bring in new troops, they bring their families, and buy things in the El Paso Electric service territory, and that helps us. Our sales have grown four times faster than the industry average for the past five years.”</p>
<p>In addition to installing new lines and meters, El Paso Electric added a 288 MW combined-cycle power unit at its existing Newman site. The company built the new capacity in stages, first installing two gas turbines in 2009, and then adding an HRSG and steam turbine in 2011. Now it’s taking a similar approach in adding a $75 million simple-cycle gas turbine unit at its Rio Grande plant. In this way, Carpenter says, El Paso Electric is expanding its assets in a measured and efficient way. “You earn ROE and ROA by managing growth,” he says. “We work hard to manage our costs and build plant when it’s needed. We don’t want to add capacity in lumps and have excess generation.”</p>
<p>During the next five years, El Paso Electric expects to invest about $1.5 billion in capital projects, 60 percent of which will go toward generation expansions and 35 percent into transmission and distribution. Plans also include a 2.5-MW solar project at the company’s Newman site, and 20 MW of photovoltaic (PV) capacity at Fort Bliss. The company won’t have to invest much in emissions controls, because its power capacity is mostly nuclear and gas-fired—45 percent and 35 percent, respectively. At some point, as capital spending tapers off, Carpenter says its increased rate base will allow the company to put more earnings into paying dividends.</p>
<p>“We’re a fairly simple utility,” he says. “We’re not diversified, and we’re not big into energy trading. While that might limit the upside, it also limits the downside. The key is that we’re a growing utility, and we’re also a low-risk investment. We’re maintaining a very strong capital structure, so shareholders can expect dividends plus growth in their investment going forward.”</p>
<h4>MGE Energy: Community Growth</h4>
<p>Madison, Wisc., lies in the heart of the upper Midwest’s breadbasket, within a few hours’ drive of both Chicago and Milwaukee. But while Milwaukee is a city of heavy industry (and beer), and Chicago is the city with the broad shoulders (and thick pizza), Madison is more like the Berkeley of the Midwest. In particular, the University of Wisconsin-Madison hosts 42,000 students—nearly 14 percent of the city’s population—and has a well-earned reputation for left-leaning political activism. That reputation, moreover, seems to infuse the city. Most recently, the Occupy movement got a boost when hundreds of activists camped on the Wisconsin state capitol grounds last year to protest Gov. Scott Walker’s move to reduce the collective bargaining power of public employee unions.</p>
<p>What does all this have to do with the utility industry? Plenty.</p>
<p>The city of Madison is served by Madison Gas &amp; Electric, whose holding company, MGE Energy, this year ascended to the #11 position in the <i>Fortnightly 40</i> ranking of shareholder value performance, from #24 last year. MGE’s strong rank is driven by industry-leading numbers for free cash flow (#8), return on assets (#10), and profit margin (#17). According to Jeff Newman, CFO, the company achieved those numbers with a straightforward proposition: it focuses on providing the service that its uniquely progressive community wants, within the framework of a conservative regulated business enterprise. This strategy allows MGE to invest in things like distributed generation (DG) and electric vehicle (EV) charging stations, and to exceed its state-mandated renewable portfolio requirements, while it also delivers top-tier financial returns for shareholders.</p>
<p>“Above all, in Wisconsin our regulatory model rewards reliability—not only operational reliability, but also financial reliability,” Newman says. “We stay very close to a triple-A bond rating, because if you have strong credit quality and a strong capital structure, you will be successful in the utility business. Our model is a model of reliability.”</p>
<p>In addition to its credit ratings, another measure of MGE’s conservative financial management is the fact that it’s raised its dividend every year since the mid-’70s. Its 3.79-percent dividend yield is unremarkable, ranking #48th among the companies in our survey, but Newman says that just illustrates the company’s careful approach. “Sometimes utilities extend themselves too far and then have to cut their dividend,” Newman says. “It’s better to increase the dividend, and that means you can’t get ahead of yourself. It goes back to our conservative roots. We try to manage within a range”—namely, about 60 to 70 percent of earnings, he says.</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Newman.jpg" target="_blank"><img align="left" alt="“If you have strong credit quality and a strong capital structure, you will be successful in the utility business.” - Jeff Newman, MGE Energy" border="0" height="468" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Newman3i.jpg" title="“If you have strong credit quality and a strong capital structure, you will be successful in the utility business.” - Jeff Newman, MGE Energy" width="339" /></a></p>
<p>MGE’s focus on a conservative financial strategy belies the company’s focus on serving its progressive-minded customers. “We think of ourselves as a community energy company,” says Lynn Hobbie, senior vice president for Madison Gas &amp; Electric. “The focus of our business is on paying attention to the needs of our regulated service territory—but also casting an eye to the future, for new opportunities that arise.” Case in point: MG&amp;E provides a green pricing program that Hobbie says is among the most successful in the industry, with about 10 percent of customers choosing to purchase a renewable-heavy power supply. And as a result, the company has invested in rate-regulated renewable facilities, and now generates more than 12 percent of its retail electricity from renewable resources—already exceeding the state’s goal for the year 2015 by a fifth.</p>
<p>Another example is distributed generation. The company provides backup generators for commercial and industrial customers who need redundant generation. “We own the DG, we operate and maintain it,” Hobbie says. “When we need it, it’s available for the community, and when the customer needs it, the DG is there for them. It’s a tariffed service, but it’s also a partnership that helps the customer relationship.” Similarly, the company built a 150-MW onsite cogeneration facility for UW-Madison, providing electricity as well as steam for the university’s heating and evaporative cooling needs.</p>
<p>“It’s what the customer wanted,” Newman says. “The customer got value, and so did our shareholders.”</p>
<p>Other examples include investments in 29 EV charging stations throughout Madison—a huge number for a small city, especially one in the northern tier where EVs are just now entering showrooms. Further, the company now is planning to build public refueling stations for compressed natural gas (CNG) vehicles. “Our service territory is a very progressive one, and the number of EVs appearing here is higher than most,” says Scott Schmitt, director of finance and business planning for MG&amp;E. “We’re hoping our network of stations will help customers feel more comfortable adopting the technology.”</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Nissan-Leaf.jpg" style="text-decoration: underline; " target="_blank"><img align="left" alt="One of 29 public EV recharging stations that MG&amp;E installed in Madison, Wisc." border="0" height="267" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-leaf.jpg" title="One of 29 public EV recharging stations that MG&amp;E installed in Madison, Wisc." width="339" /></a></p>
<p>To determine what customers want, the company makes a point of asking them. In the early 2000s, MG&amp;E foresaw a growing need for generating capacity, and it sought input from the community about how it should meet that need. “We invited all the customers in our service area to talk with us about energy supply planning, and we got their perspective and feedback on what we should do,” Hobbie says. “We used that for our decisions going forward. It’s always a balancing act, of course; some customers will value one thing, and others value something diametrically opposed. But we give them a chance to give us input.” That process led the company to invest in 30 MW of wind power capacity in Iowa, as well as a 100-MW share of two new supercritical coal-fired units at We Energies’ 1,230-MW Elm Road site, which started operating last year near Milwaukee. MGE also switched fuels at its Blount plant in Madison, from coal to natural gas.</p>
<p>MGE’s cash flow and profitability also is buoyed by its stake in American Transmission Co. (ATC), created in 2001 to own and operate the transmission assets of numerous utilities in Wisconsin and the upper Midwest. ATC is working on a host of new lines and upgrades, as part of a plan that envisions up to $4.4 billion in investments through 2020. “That asset growth has helped each utility in Wisconsin, including MGE,” Newman says.</p>
<p>And by turns, it has helped MGE to meet its customers’ demand for things like renewables and EV charging infrastructure. “If we stay financially strong, we can be all those things for the customer,” Newman says. “That’s how we operate this company, and it’s why we continue to move up in the <i>Fortnightly 40</i> numbers.”</p>
<h4>NextEra Energy: A Tale of Two Strategies</h4>
<p>In some sense, the past couple of years have been the best of times and the worst of times for NextEra Energy.</p>
<p>Best, because NextEra produced industry-leading four-year performance in free cash flow (#4), ROE (#11), profit margin (#11), and sustainable growth (#14). Strength like that, across a range of metrics, lifted NextEra into an elite #5 position in this year’s <i>Fortnightly 40</i> ranking—the highest position the company has ever achieved, up from #11 last year and #29 in 2010.</p>
<p>But it was among the worst of times for the same reasons that challenged so many other companies in the industry. “We’ve never seen a period with so much uncertainty, around so many factors,” says NextEra CFO and Vice Chairman Moray Dewhurst. “The economy is uncertain and hesitant; commodity prices are very low and volatile; there’s uncertainty about energy policy; and uncertainty about technology. Never in 100 years have we had more rapid development on technologies that could have a major influence on our industry.”</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Dewhurst.jpg" style="text-decoration: underline; " target="_blank"><img align="left" alt="“We’re considering other growth paths [at NextEra Energy Resources]. We have a lot of arrows in the quiver.” - Moray Dewhurst, NextEra Energy" border="0" height="495" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Dewhurst2.jpg" title="““We’re considering other growth paths [at NextEra Energy Resources]. We have a lot of arrows in the quiver.” - Moray Dewhurst, NextEra Energy" width="342" /></a></p>
<p>All these uncertainties have set the stage for rising tension between utilities and their regulators, especially when utilities ask for rate increases to recover capital costs. NextEra’s regulated subsidiary, FP&amp;L, encountered such conflict in 2010, when the Florida Public Service Commission rejected all but $75.5 million of its requested $1.3 billion rate request. The highly politicized ruling prompted a housecleaning at the PSC; four of five commissioners were replaced, and in early 2011 FP&amp;L reached a settlement with the PSC that would freeze the company’s rates through 2012, but would allow pass through of certain costs related to storm damage restoration, as well as capital costs for FP&amp;L’s new, $900-million West County Unit 3 combined-cycle plant—but only those costs that are offset by projected fuel savings. In the bargain, FP&amp;L’s allowed ROE declined from 12.5 to 10 percent.</p>
<p>Now it’s 2012, and FP&amp;L is seeking rate recovery for its capital costs, most notably investments that Dewhurst says will benefit customers by improving the fuel efficiency of its generating portfolio. “How we come out of that rate case is an important factor in determining how well we’ll perform in subsequent years,” Dewhurst says. FP&amp;L plans to invest about $15 billion in capital projects through 2014, including new gas-fired plants at Cape Canaveral, Riviera Beach, and Port Everglades, scheduled for startup in 2013, 2014, and 2016, respectively, as well as an ongoing advanced metering infrastructure (AMI) rollout. The company already has installed smart meters at about 3 million sites, and is working to install another 1.5 million by the end of 2013.</p>
<p>In a settlement agreement FP&amp;L proposed to the Florida PSC in mid-August, the company asked for $378 million in rate recovery—reduced from an earlier $517 million request. In exchange, it would cut its requested ROE to 10.7-percent, from 11.5 percent, and would agree to freeze rates for four years. The deal would benefit FP&amp;L customers, Dewhurst says, because it would cost only a few cents a day, while saving $1 billion in fuel costs over the operating lives of the new plants, which will operate more efficiently than the company’s older units. “If the commission were to grant 100 percent of our request, our customers still would have the lowest typical bills of all utility customers in the state,” he says. “So it’s not a question of jeopardizing the most affordable service in Florida.”</p>
<p>At the same time, NextEra’s other primary business unit—NextEra Energy Resources (NER)—faces shifting winds in the renewable energy business. As the country’s largest operator of wind turbines, and the developer of the biggest solar project in the country, NER’s prospects have been closely linked to federal and state energy policies that encourage renewable power investments. With the U.S. Congress currently in a stalemate over whether to extend some renewable production tax credits (PTC) beyond the end of the year, the opportunities for further development might seem to be drying up. Not so, according to Dewhurst.</p>
<p>“At NextEra Energy Resources, we have a tangible growth path driven by new investments in renewable projects,” he says. “Today we have the largest backlog of projects in the industry, and it doesn’t depend on any extension of the PTC.” The company expects to begin operating 1,300 MW of new wind generation in the next year, and has another 900 MW of solar capacity in development through 2016. Dewhurst says about two-thirds of the company’s assets operate under long-term power purchase agreements, and one-third are exposed to market prices. “Any business with exposure to merchant power markets is struggling right now, and our assets are no different,” he says. “We have to do the best job we can, squeezing performance out of those assets, and running them reliably. Earnings growth from the investments we are making is more than enough to offset the headwinds we’re seeing from declining commodity prices.”</p>
<p>Even so, the company is exploring alternatives to wind and solar. “We’re in early stages of considering other growth paths,” he says. “We have clear sight now on our growth through the first half of the decade. What we’re talking about now is what will power the organization’s growth through the second half of the decade. We have a lot of arrows in the quiver.”NER’s assumptions don’t include any new wind projects entering the pipeline after 2012, but Dewhurst says he’s optimistic that some form of tax credit will allow continued development. “It might not be at the historic level, but we expect to enjoy pretty strong policy support for renewables,” he says. “Certainly the public supports renewables, and that’s reflected in policy support. But until renewables can play on a level playing field, and the negative environmental attributes of fossil fuels are priced in, we’ll have to fall back on the second-best solution of policy support.”</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Capricorn_Ridge.jpg" style="text-decoration: underline; " target="_blank"><img align="left" alt="NextEra’s 663-MW Capricorn Ridge wind farm in West Texas." border="0" height="248" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-capricorn.jpg" title="NextEra’s 663-MW Capricorn Ridge wind farm in West Texas." width="339" /></a></p>
<p>Taken together, the two sides of NextEra’s business provide strong prospects for growth, but the company still seeks to maintain about a 50-percent payout ratio for its dividend. The company’s dividend yield ranks low in the <i>F40</i> rankings—which isn’t too surprising, given NextEra’s current capex program. But Dewhurst says the company’s strategy aims to produce a strong total return for shareholders, by investing in ways that serve its customers’ needs.</p>
<p>“We have to continue delivering reliable and affordable service; that’s the whole value proposition,” he says. “We focus on operational metrics that drive low costs and high reliability over time. We’re in the largest capital spending wave in our history, creating a path for potential earnings growth by doing what’s right for our customers. If we execute well on that, we’ll give customers a better deal for the long haul.”</p>
<h4>PSEG: Hitting Benchmarks</h4>
<p>Public Service Enterprise Group (PSEG) has ranked among the top 10 companies in the <i>Fortnightly 40</i> for three years, and this year it rises all the way to the #2 position. The company’s performance is driven by strong ROA and ROE figures (#5 and #7 in the industry, respectively), as well as leading profit margins (#9) and sustainable growth (#13). And for CFO and Executive Vice President Caroline Dorsa, those accomplishments effectively summarize the company’s strategic focus.</p>
<p>“The metrics are working as they should,” Dorsa says. “They’re measuring the financial outcome of our operational focus, which drives us to make good investment choices, get the most out of our assets, and manage our cost structure and capital allocation. Those are the tenets of our strategy, the pillars of our company. If you do those things right, if you invest in ways that create shareholder value, you’ll do well on margin and you’ll get sustainable returns.”</p>
<p><a href="http://www.fortnightly.com/sites/default/files/1209-FEA1-Dorsa.jpg" style="text-decoration: underline; " target="_blank"><img align="left" alt="“We already stepped up and made the environmental investments that others are now starting to make.” - Caroline Dorsa, PSEG" border="0" height="436" src="http://www.fortnightly.com/sites/default/files/1209-FEA1-Dorsa2.jpg" title="“We already stepped up and made the environmental investments that others are now starting to make.” - Caroline Dorsa, PSEG" width="342" /></a></p>
<p>PSEG’s returns come from two primary businesses—Public Service Electric &amp; Gas, its New Jersey regulated utility, and PSEG Power, which runs a large portfolio of fossil and nuclear plants, as well as the company’s energy trading operation. Dorsa views these two businesses as complementary, even though PSEG Power is struggling in the current commodity market. “Despite the challenge in power prices, PSEG Power continues to be an important contributor to our earnings—but more importantly, it’s a significant contributor to our free cash flow,” she says. “PSEG Power has lower capital investment needs than it did in the past, because we already stepped up and made the environmental investments that others are now starting to make. Cash flow in excess of expenses gives us the ability to invest in other areas of the utility—including solar, energy efficiency, and perhaps more gas infrastructure.”</p>
<p>Like many other companies in the industry, PSEG has embarked on a major capex program, totaling $6.5 billion from 2012 through 2014. “That’s more than we’ve ever spent in a three-year period,” Dorsa says. About $3.5 billion of the total is going into transmission investments, under formula rates with returns totaling 11.7 percent or higher. Additional spending is aimed at renewable and energy efficiency investments, as well as maintenance projects, all of which would generate a 10.3-percent return for PSE&amp;G. And PSEG Power would invest about $1.1 billion in a combination of peaking power facilities and a possible uprate at the Peach Bottom nuclear plant, which the company owns in partnership with Exelon. And having already spent $1 billion on emissions controls, PSEG considers itself well positioned to compete against other generators when regulatory and market uncertainties are resolved. “We know environmental regulations are coming,” Dorsa says. “We hope to see the new EPA rules get promulgated, particularly as they relate to mercury and acid gases. They really are needed for public health, and they could lead to coal plant retirements by others. That would affect where we stand in the balance of energy supplies.”</p>
<p>In addition to the current $6.5 billion capex program, PSE&amp;G recently proposed to spend an additional $883 million on rate-base solar projects, which Dorsa says would earn a 10.3-percent return if approved by the New Jersey Board of Public Utilities. “We’re very happy to make investments in solar, but solar is expensive,” she says. “The state of New Jersey is interested in having a strong renewable energy profile, as part of the energy master plan. We support making those investments efficiently, at brownfield and greenfield sites, and on rooftops and pole tops. We see it as part of the future, but it’s not something we’d do outside the state’s master plan, because it can’t compete without subsidies yet.”</p>
<p>Dorsa says the key to PSEG’s performance over the long term has been its determination to keep costs in check and to invest in a disciplined way, in both regulated and unregulated assets. Part of that discipline involves balancing capital spending and dividends in its financial strategy. Toward that end, PSEG this year changed its dividend policy. Now, instead of targeting 40 to 50 percent of earnings, PSEG says its future dividend payouts will be based on the company’s cash flow and opportunities for growth at the utility. This year that equated to a 3.6-percent increase in the dividend, or about a 60-percent payout ratio.</p>
<p>Finally, according to Dorsa PSEG seeks to maintain its disciplined approach by continuously measuring its performance in all operational areas. “We benchmark pretty much everything we do,” she says. “Operational excellence and discipline is a license to be at the table, to make new investments. It’s never going to happen with financial engineering alone. It has to start with operational performance.”</p>
</div></div></div><div class="field-collection-container clearfix"><div class="field field-name-field-sidebar field-type-field-collection field-label-above"><div class="field-label">Sidebar:&nbsp;</div><div class="field-items"><div class="field-item even"><div class="field-collection-view clearfix view-mode-full field-collection-view-final"><div class="entity entity-field-collection-item field-collection-item-field-sidebar clearfix">
<div class="content">
<div class="field field-name-field-sidebar-title field-type-text field-label-above"><div class="field-label">Sidebar Title:&nbsp;</div><div class="field-items"><div class="field-item even">Behind the Rankings</div></div></div><div class="field field-name-field-sidebar-body field-type-text-long field-label-above"><div class="field-label">Sidebar Body:&nbsp;</div><div class="field-items"><div class="field-item even"><!--smart_paging_autop_filter--><!--smart_paging_filter--><p>Our annual survey of power and gas company performance relies on a modified DuPont model, based on its 89 year-old namesake approach for calculating shareholder value in asset-intensive industries. In 2008 we tweaked the model—which originally was developed in 1919 by a finance executive at E.I. du Pont de Nemours &amp; Co.—to measure growth on a long-term, sustainable basis <i>(See sidebar “F40 Model Characteristics”)</i>.</p><p>The <i>Fortnightly 40 </i>model combines several common measures of financial performance—profitability, dividend yield, cash flow, return on equity (ROE) and return on assets (ROA)—together with a sustainable growth-rate calculation, to produce an overall picture of a company’s value and long-term prospects. To avoid the pitfalls of short-term fluctuations, the model evaluates four years of results for each company. (This represents a change from 2008 and previous <i>F40 </i>rankings, which considered three years of financial results.)</p><p>The universe for the ranking—which this year numbers 82 companies—includes publicly traded, U.S.-based companies with major assets in energy production, transportation and retail delivery, and positive shareholder equity value for the past four years. Pure-play mining and exploration &amp; production companies are excluded, but a few pure-play merchant power generation companies are included in the sample.–<span class="bolditalic">MTB</span></p><p><b>Credits: </b>The <i>Fortnightly 40 </i>model was developed in 2006 by former <i>Fortnightly </i>Executive Editor Richard Stavros and Jean Reaves Rollins, managing partner of the C Three Group in Atlanta.</p><h4>F40 Model Characteristics</h4><p><b>Time Frame: </b>4-year average</p><p> </p><p><b>Sample: </b>80 largest U.S.-based investor-owned power and gas companies, with assets in power generation or electricity and gas transmission and distribution.</p><p>Components:</p><p><b>1. Profitability</b>= Margin = Income from Continuing Operations/Total Revenues.</p><p><b>2. Dividend Yield</b>= Annual Declared Dividends/Year-End Stock Price.</p><p><b>3. Free Cash Flow</b>= Operating Cash Flow from Continuing Operations – Capital Expenditures.</p><p><b>4. DuPont ROE Five-Ratio Model:</b></p><p>a. Earnings after taxes (EAT) = Income from Continuing Operations after Taxes;</p><p>b. Earnings before taxes (EBT) = Income from Continuing Operations + Income Taxes;</p><p>c. Earnings before interest and taxes = Income from Continuing Operations before Income Taxes and Interest;</p><p>d. Revenues = Total Revenues;</p><p>e. Assets = Total Assets; and</p><p>f. Equity = Total Common Shareholders Equity.</p><p><b>5. DuPont ROE</b>= (EAT/EBT)×(EBT/EBIT)×(EBIT/Revenues)×(Revenues/Assets)×(Assets/Equity).</p><p><b>6. DuPont ROA</b>= (EAT/Revenue)×(Revenue/Assets)</p><p><b>7. Sustainable Growth</b>= DuPont ROE×(1–Dividend Payout Ratio).</p><p><b>8. </b><span class="bolditalic">Fortnightly</span><b> Index</b><b>9. Companies excluded </b>from the FY2011 survey due to M&amp;A activity: Allegheny Energy, DPL, and Nicor.</p></div></div></div> </div>
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</div></div></div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/strategy-planning">Strategy &amp; Planning</a></li><li class="taxonomy-term-reference-1"><a href="/article-categories/stocks-equity-markets">Stocks / Equity Markets</a></li><li class="taxonomy-term-reference-2"><a href="/article-categories/fortnightly-40-index">Fortnightly 40 Index</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/1209-FEA1.jpg" width="1500" height="1138" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
<div class="field-items">
<a href="/tags/fortnightly-40">Fortnightly 40</a><span class="pur_comma">, </span><a href="/tags/40-best-energy-companies">40 Best Energy Companies</a><span class="pur_comma">, </span><a href="/tags/finance">Finance</a><span class="pur_comma">, </span><a href="/tags/strategy">Strategy</a><span class="pur_comma">, </span><a href="/tags/planning">planning</a><span class="pur_comma">, </span><a href="/tags/shareholder-performance">shareholder performance</a><span class="pur_comma">, </span><a href="/tags/balance-sheet">balance sheet</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/customer-demand">customer demand</a><span class="pur_comma">, </span><a href="/tags/return-assets">return on assets</a><span class="pur_comma">, </span><a href="/tags/roa">ROA</a><span class="pur_comma">, </span><a href="/tags/return-equity">Return on equity</a><span class="pur_comma">, </span><a href="/tags/roe">ROE</a><span class="pur_comma">, </span><a href="/tags/jean-reaves-rollins-0">Jean Reaves Rollins</a><span class="pur_comma">, </span><a href="/tags/c-three-group">C Three Group</a><span class="pur_comma">, </span><a href="/tags/carolina-dorsa">Carolina Dorsa</a><span class="pur_comma">, </span><a href="/tags/public-service-enterprise-group">Public Service Enterprise Group</a><span class="pur_comma">, </span><a href="/tags/jack-azagury">Jack Azagury</a><span class="pur_comma">, </span><a href="/tags/accenture">Accenture</a><span class="pur_comma">, </span><a href="/tags/exelon">Exelon</a><span class="pur_comma">, </span><a href="/tags/pseg-0">PSEG</a><span class="pur_comma">, </span><a href="/tags/energen">Energen</a><span class="pur_comma">, </span><a href="/tags/entergy">Entergy</a><span class="pur_comma">, </span><a href="/tags/nextera">NextEra</a><span class="pur_comma">, </span><a href="/tags/centerpoint">CenterPoint</a><span class="pur_comma">, </span><a href="/tags/dominion">Dominion</a><span class="pur_comma">, </span><a href="/tags/aes">AES</a><span class="pur_comma">, </span><a href="/tags/questar">Questar</a><span class="pur_comma">, </span><a href="/tags/ppl">PPL</a><span class="pur_comma">, </span><a href="/tags/mge-energy">MGE Energy</a><span class="pur_comma">, </span><a href="/tags/el-paso-electric">El Paso Electric</a><span class="pur_comma">, </span><a href="/tags/national-fuel-gas">National Fuel Gas</a><span class="pur_comma">, </span><a href="/tags/gas-natural">Gas Natural</a><span class="pur_comma">, </span><a href="/tags/piedmont-natural-gas">Piedmont Natural Gas</a><span class="pur_comma">, </span><a href="/tags/cleco">Cleco</a><span class="pur_comma">, </span><a href="/tags/nstar">NStar</a><span class="pur_comma">, </span><a href="/tags/ugi">UGI</a><span class="pur_comma">, </span><a href="/tags/delta-natural-gas">Delta Natural Gas</a><span class="pur_comma">, </span><a href="/tags/sempra-energy">Sempra Energy</a><span class="pur_comma">, </span><a href="/tags/southern-company">Southern Company</a><span class="pur_comma">, </span><a href="/tags/south-jersey-industries">South Jersey Industries</a><span class="pur_comma">, </span><a href="/tags/oge-energy">OGE Energy</a><span class="pur_comma">, </span><a href="/tags/american-electric-power">American Electric Power</a><span class="pur_comma">, </span><a href="/tags/southern-union">Southern Union</a><span class="pur_comma">, </span><a href="/tags/agl-resources">AGL Resources</a><span class="pur_comma">, </span><a href="/tags/itc-holdings">ITC Holdings</a><span class="pur_comma">, </span><a href="/tags/chesapeake-utilities">Chesapeake Utilities</a><span class="pur_comma">, </span><a href="/tags/pinnacle-west">Pinnacle West</a><span class="pur_comma">, </span><a href="/tags/laclede">Laclede</a><span class="pur_comma">, </span><a href="/tags/dte-energy">DTE Energy</a><span class="pur_comma">, </span><a href="/tags/wisconsin-energy">Wisconsin Energy</a><span class="pur_comma">, </span><a href="/tags/genon-energy">GenOn Energy</a><span class="pur_comma">, </span><a href="/tags/nrg">NRG</a><span class="pur_comma">, </span><a href="/tags/teco-energy">TECO Energy</a><span class="pur_comma">, </span><a href="/tags/eqt">EQT</a><span class="pur_comma">, </span><a href="/tags/new-jersey-resources">New Jersey Resources</a><span class="pur_comma">, </span><a href="/tags/scana">SCANA</a><span class="pur_comma">, </span><a href="/tags/idacorp">IDACORP</a><span class="pur_comma">, </span><a href="/tags/firstenergy">FirstEnergy</a><span class="pur_comma">, </span><a href="/tags/wgl-holdings">WGL Holdings</a><span class="pur_comma">, </span><a href="/tags/profit-margin">Profit Margin</a><span class="pur_comma">, </span><a href="/tags/dividend-yield">dividend yield</a><span class="pur_comma">, </span><a href="/tags/free-cash-flow">Free Cash Flow</a><span class="pur_comma">, </span><a href="/tags/sustainable-growth">Sustainable Growth</a><span class="pur_comma">, </span><a href="/tags/capex">CapEx</a><span class="pur_comma">, </span><a href="/tags/eon-us">E.On US</a><span class="pur_comma">, </span><a href="/tags/louisville-gas-electric">Louisville Gas &amp; Electric</a><span class="pur_comma">, </span><a href="/tags/kentucky-utilities">Kentucky Utilities</a><span class="pur_comma">, </span><a href="/tags/allegheny-energy">Allegheny Energy</a><span class="pur_comma">, </span><a href="/tags/energy-west">Energy West</a><span class="pur_comma">, </span><a href="/tags/rgc-resources">RGC Resources</a><span class="pur_comma">, </span><a href="/tags/edison-international">Edison International</a><span class="pur_comma">, </span><a href="/tags/alliant">Alliant</a><span class="pur_comma">, </span><a href="/tags/norhwest-natural-gas">Norhwest Natural Gas</a><span class="pur_comma">, </span><a href="/tags/xcel">Xcel</a><span class="pur_comma">, </span><a href="/tags/photovoltaics">Photovoltaics</a><span class="pur_comma">, </span><a href="/tags/pv">PV</a><span class="pur_comma">, </span><a href="/tags/electric-vehicles">Electric vehicles</a><span class="pur_comma">, </span><a href="/tags/ev">EV</a><span class="pur_comma">, </span><a href="/tags/andres-gluski">Andres Gluski</a><span class="pur_comma">, </span><a href="/tags/dpl">DPL</a><span class="pur_comma">, </span><a href="/tags/indianapolis-power-light">Indianapolis Power &amp; Light</a><span class="pur_comma">, </span><a href="/tags/david-carpenter">David Carpenter</a><span class="pur_comma">, </span><a href="/tags/scott-walker">Scott Walker</a><span class="pur_comma">, </span><a href="/tags/jeff-newman">Jeff Newman</a><span class="pur_comma">, </span><a href="/tags/lynn-hobbie">Lynn Hobbie</a><span class="pur_comma">, </span><a href="/tags/we-energies">WE Energies</a><span class="pur_comma">, </span><a href="/tags/american-transmission-co">American Transmission Co.</a><span class="pur_comma">, </span><a href="/tags/atc">ATC</a><span class="pur_comma">, </span><a href="/tags/moray-dewhurst">Moray Dewhurst</a><span class="pur_comma">, </span><a href="/tags/fpl-0">FP&amp;L</a><span class="pur_comma">, </span><a href="/tags/florida-public-service-commission">Florida Public Service Commission</a><span class="pur_comma">, </span><a href="/tags/scott-schmitt">Scott Schmitt</a><span class="pur_comma">, </span><a href="/tags/compressed-natural-gas">compressed natural gas</a><span class="pur_comma">, </span><a href="/tags/cng">CNG</a><span class="pur_comma">, </span><a href="/tags/production-tax-credit">Production tax credit</a><span class="pur_comma">, </span><a href="/tags/ptc">PTC</a> </div>
</div>
Wed, 12 Sep 2012 13:18:38 +0000puradmin14761 at http://www.fortnightly.comGetting Hitchedhttp://www.fortnightly.com/fortnightly/2012/04/getting-hitched
<div class="field field-name-field-import-deck field-type-text-long field-label-inline clearfix"><div class="field-label">Deck:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Marrying customer engagement and profits.</p>
</div></div></div><div class="field field-name-field-import-byline field-type-text-long field-label-inline clearfix"><div class="field-label">Byline:&nbsp;</div><div class="field-items"><div class="field-item even"><p>Alan Denton</p>
</div></div></div><div class="field field-name-field-import-bio field-type-text-long field-label-inline clearfix"><div class="field-label">Author Bio:&nbsp;</div><div class="field-items"><div class="field-item even"><p><b>Alan Denton</b> is executive director at CSG International.</p>
</div></div></div><div class="field field-name-field-import-volume field-type-node-reference field-label-inline clearfix"><div class="field-label">Magazine Volume:&nbsp;</div><div class="field-items"><div class="field-item even">April 2012</div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even"><p>The evolution of communications technology has drastically changed the way utility companies can communicate with customers. One-way dialogue that begins and ends at the meter is no longer acceptable; customers demand a two-way conversation. From the phone to email, text messaging, print, and mail, there are many more channels to communicate with customers today. Maximizing those opportunities can seem overwhelming, but the reality is all of these communication channels present an unprecedented opportunity for utilities.</p>
<p>Customer engagement strategies and technologies enable utilities to better connect with their customers, learn more about what they need, how they consume energy, and turn that knowledge into new revenue opportunities. It also can lead to more on-line interaction and payment acceptance.</p>
<p>A better understanding of customers’ pain points and demands leads to better solutions and services, which in turn improves customer satisfaction and loyalty. It also cuts expenses, which makes proactive customer engagement the perfect marriage of engagement and profits.</p>
<h4>What’s Your Strategy?</h4>
<p>To develop a strategy that can deliver consistent and effective customer engagement, executives begin by asking questions about practices and goals. How often do you communicate with customers now? How well is it working? What channels do you have in place to talk to customers? What channels are on your wish list? Who will be the champion internally to facilitate the program? What’s the process for acting on the results? These are critical questions that need to be answered. Talk to those that have done this before and use your partners to leverage their best practices advice. No two strategies are alike, but they often share the same goals and can save some headaches during the planning process.</p>
<p>A key step is to find out what’s working and what’s not. Taking the time to discover end-to-end business process pain points creates the opportunity to transform them into better solutions and services. For instance, walk through the current communication lifecycle with a customer. Where are the communication triggers? Meet with the appropriate business and IT process owners to gain understanding of the systems capable of invoking triggers that result in customer communications or internal alerts. The next step is to evaluate which data points are required to facilitate the communication request. Is editing or enrichment required in order for the request to be fulfilled? This process will also outline dependent applications and data needed to meet the objective.</p>
<p>The next step is to determine what additional information is needed regarding customer preferences, accounts, and premises for complete delivery of the trigger communication. This is the best opportunity to augment the engagement event with as much data as possible. Things that might be identified here range from gathering the customer’s preference on how and when they would like to be communicated with, to premise and lifestyle data attributes that lead to more customized, targeted, and engaging communications. This process can address whether and how customer preference and premise information is gathered using such things as web, interactive voice response (IVR), or customer service representatives (CSR), and how and where this data can be accessed.</p>
<p>Once the data has been turned into information, the next step is to add rules around that information. Relevant business rules should be analyzed for each message type and reviewed to ensure that proper control is maintained to meet internal policy and external regulatory requirements.</p>
<p>Now that the communication has been identified, the next step is to determine the most appropriate channels for each communication type, as well as what applications and templates are needed to support the message. From print and email, to SMS, voice, and the Web, each communication channel for each message type should be reviewed to evaluate its success. The review should consider each channel’s strategy, and also how the communications channels relate to each other as part of an integrated strategy. Each channel should be part of a greater whole, using similar themes, messages, and topics to support one another. A communication channel that’s siloed from others will never be as successful as when it acts as part of a family of messages, all driving toward a singular goal.</p>
<p>The final process in the communication lifecycle is to evaluate the interaction response and the action from each communication type and what applications need the information. The review should identify each result or response by communication channel, business rule invoked, and message type or ID for tracking and historical purposes, and should identify all of the interaction results, such as offer acceptance or payment.</p>
<h4>Everyone Wins</h4>
<p>With a clear understanding of how opportunities and investments can benefit the customer, executives can consider how these initiatives will benefit the utility—keeping in mind the goal and definition of “engagement.” For example, when sending out a bill, utilities are looking for payment of the services provided over the past billing period. Receiving the same number of payments for the same number of bills could be measured and thus deemed customer engagement.</p>
<p>The most effective solutions enable the utility to look across the organization at the enterprise level to not only effectively choose what type of message by what channel, but also adhere to utility policy and streamline the number of systems required. For example, as utilities deploy smart meters and AMI, who at the utility is working to proactively communicate potential outages? Is this a shared platform? Does the outage management system have enough detail to make an outbound communication? Does the data need to validated, edited, enhanced? Once the communication is packaged, what is the successful measurement? Are customers impacted or potentially impacted in a set period of time? Do customers who receive the proactive notification (engagement) refrain from calling the call center, thus reducing call-center costs (operational savings)?</p>
<p>At the enterprise level, engagement will be measured differently, but can be tied back to increasing customer satisfaction and cutting operational costs. For example, proactive automated calls are less expensive than customer initiated call-center calls.</p>
<h4>Capitalizing on Engagement</h4>
<p>Once the strategy has been mapped out, utility companies should look to move beyond discussion to deployment in order to capitalize on those benefits. The key to success is picking just one area to start, because implementing an optimized communication strategy doesn’t happen overnight. For example, starting small with a new, more real-time interactive process, such as real-time consumption and billing amounts, can generate benefits immediately. Alternatively, evaluating existing processes, such as payment reminders or collection notices, might be more advantageous if the focus is on operational efficiencies.</p>
<p>No matter where an engagement strategy begins, the goals of that strategy must be aligned with the utility’s long-term vision. If the objective is to enable all inbound and outbound communications via customer preference and utility policy, then the vision and infrastructure must be consistent with that objective. Further, the vision must incorporate not only all the communication touch points, but also all the back-end systems and ancillary data points to complete the end-to-end process for all notifications. Understanding the requirements of engagement processes, along with aligning deployment timeline goals, will help get things moving in the right direction.</p>
<p>And finally, goals mean nothing unless they’re measurable, so measurement processes should be part of the process framework. Some organizations might seek higher customer satisfaction scores, while others might be looking for operational savings or back-office automation. Aligning the goals to the vision is critical to ensuring deployment happens across the right channels, and with the right customers. An honest and thorough assessment will put any company on the right track toward customer engagement success.</p>
</div></div></div><div class="field field-name-field-article-category field-type-taxonomy-term-reference field-label-above clearfix"><h3 class="field-label">Category (Actual): </h3><ul class="links"><li class="taxonomy-term-reference-0"><a href="/article-categories/customer-engagement">Customer Engagement</a></li></ul></div><div class="field field-name-field-members-only field-type-list-boolean field-label-above"><div class="field-label">Viewable to All?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-article-featured field-type-list-boolean field-label-above"><div class="field-label">Is Featured?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-image-picture field-type-image field-label-above"><div class="field-label">Image Picture:&nbsp;</div><div class="field-items"><div class="field-item even"><img src="http://www.fortnightly.com/sites/default/files/article_images/1204/images/1204-FEA2.jpg" width="1263" height="1500" alt="" /></div></div></div><div class="field field-name-field-fortnightly-40 field-type-list-boolean field-label-above"><div class="field-label">Is Fortnightly 40?:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-law-lawyers field-type-list-boolean field-label-above"><div class="field-label">Is Law &amp; Lawyers:&nbsp;</div><div class="field-items"><div class="field-item even"></div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above clearfix">
<div class="field-label">Tags:&nbsp;</div>
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<a href="/tags/ami">AMI</a><span class="pur_comma">, </span><a href="/tags/customer-engagement">Customer engagement</a><span class="pur_comma">, </span><a href="/tags/it">IT</a><span class="pur_comma">, </span><a href="/tags/sms">SMS</a><span class="pur_comma">, </span><a href="/tags/strategy">Strategy</a> </div>
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Sun, 01 Apr 2012 04:00:00 +0000puradmin13400 at http://www.fortnightly.com